Restaurant company Cheesecake Factory (NASDAQ:CAKE) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 4.2% year on year to $865.5 million. Its non-GAAP profit of $0.58 per share was 17.7% above analysts’ consensus estimates.
Is now the time to buy The Cheesecake Factory? Find out by accessing our full research report, it’s free.
The Cheesecake Factory (CAKE) Q3 CY2024 Highlights:
- Revenue: $865.5 million vs analyst estimates of $866.1 million (in line)
- Adjusted EPS: $0.58 vs analyst estimates of $0.49 (17.7% beat)
- EBITDA: $59 million vs analyst estimates of $52.82 million (11.7% beat)
- Gross Margin (GAAP): 41.5%, up from 40.2% in the same quarter last year
- Operating Margin: 3.9%, up from 2.3% in the same quarter last year
- EBITDA Margin: 6.8%, up from 5.2% in the same quarter last year
- Locations: 341 at quarter end, down from 353 in the same quarter last year
- Market Capitalization: $2.2 billion
“The third quarter was our fourth consecutive quarter of year-over-year top- and bottom-line growth, reflecting our strong operational execution, the benefits of our scale, and the delicious, memorable experiences we offer across our restaurant concepts,” said David Overton, Chairman and Chief Executive Officer.
Company Overview
Celebrated for its delicious (and free) brown bread, gigantic portions, and delectable desserts, Cheesecake Factory (NASDAQ:CAKE) is an iconic American restaurant chain that also owns and operates a portfolio of separate restaurant brands.
Sit-Down Dining
Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.
Sales Growth
Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years.
The Cheesecake Factory is one of the larger restaurant chains in the industry and benefits from a well-known brand that influences consumer purchasing decisions.
As you can see below, The Cheesecake Factory’s sales grew at a decent 8.3% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new restaurants and increased sales at existing, established dining locations.
This quarter, The Cheesecake Factory grew its revenue by 4.2% year on year, and its $865.5 million of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 5.3% over the next 12 months, a deceleration versus the last five years. This projection doesn't excite us and shows the market believes its offerings will see some demand headwinds.
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Restaurant Performance
Number of Restaurants
The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.
The Cheesecake Factory operated 341 locations in the latest quarter. It has opened new restaurants at a rapid clip over the last two years and averaged 3.6% annual growth, much faster than the broader restaurant sector.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where the concept has few or no locations.
Same-Store Sales
The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations. Same-store sales provides a deeper understanding of this issue because it measures organic growth for restaurants open for at least a year.
The Cheesecake Factory’s demand rose over the last two years and slightly outpaced the industry. On average, the company’s same-store sales have grown by 2.5% per year. This performance suggests its rollout of new restaurants could be beneficial for shareholders. When a chain has demand, more locations should help it reach more customers and boost revenue growth.
Note that The Cheesecake Factory reports its same-store sales intermittently, so some data points are missing in the chart below.
Key Takeaways from The Cheesecake Factory’s Q3 Results
We were impressed by how significantly Allison Transmission blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates. The icing on the cake was guidance, with the company raising its full year revenue guidance. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 4.4% to $104.50 immediately after reporting.
Sure, The Cheesecake Factory had a solid quarter, but if we look at the bigger picture, is this stock a buy?When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
