Cheesecake Plans Growth

The company opened five new Cheesecake Factory restaurants during the first quarter, which was a record for it in terms of first-quarter openings, according to a Bear Stearns report. The restaurant chain plans to open one Cheesecake Factory in Burlington, MA in the second quarter, but most of the store growth will occur in the second half of the year: three in the third quarter and nine in the fourth quarter, according to David Overton, chairman and CEO. If the chain opens 18 new locations as planned, it will surpass its 2004 total of 16 new stores. The new store growth has been the primary driver of the significantly higher total sales at the company, a research report from Lehman Bros. points out.

Overton noted that the chain achieved its comparable store sales growth of 3.4% in the first quarter despite "some fairly severe weather across much of the country and near-record rainfalls in California." In addition, he cited cost cutting that improved the chain's financial results for the quarter. The company's CFO, Michael Dixon, reported in the conference call that new locations in Naples and Jacksonville, FL and Rancho Cucamonga, CA averaged weekly sales in excess of $280,000 for the first quarter, far higher than typical sales. "While we don't expect them to stay at these volumes, we are certainly pleased with this kind of initial sales," Dixon said. Generally speaking, he said, "All of the new restaurants that are not in our comp base just yet are continuing their expected normal transition from their grand opening honeymoon sales volume to more sustainable levels."

At the same time, sales for the company's Grand Lux Cafe locations in Los Angeles and Chicago were up 9.5% during the first quarter from the comparable period of the year before, and average sales per week at its two newest Grand Lux Cafe locations in Dallas and Houston, which opened in late fiscal 2004, increased approximately 7% during the first fiscal quarter of 2005.

The first quarter earnings per share reported by Cheesecake Factory came close to expectations from both Bear Stearns and Lehman Bros., according to research reports by the two firms. Bear Stearns reiterated its "outperform" rating on the Cheesecake stock, which in Bear Stearns terminology means that it is expected to outperform others in the industry sector over the next 12 months. Lehman Bros. reiterated its rating of the stock as equal weight, which in its terminology means that the stock is expected to perform in line with others in the sector over the next 12 months.