Cheesecake Factory Upgraded

CALABASAS HILLS, CA-The Cheesecake Factory, looking at growth that will eventually double the restaurant chain to 200 locations, has earned an aggressive “buy” rating from S.G. Cowen & Co. after posting positive financial results this week. The chain reported a 32% increase in net income to $23.3 million and a 23% revenue increase to $288.3 million for the second quarter ended June 28.

“Cake remains one of our favorite core growth restaurant names andwe continue to expect Cake shares to outperform the market by more than 25% over the next 12 months,” said the S. G. Cowen report, authored by analyst Paul Westra. The research report recommended “continued aggressive purchase” of the restaurant company’s shares.

In a conference call discussing the company’s second quarter financial results, chairman and CEO David Overton said in response to analysts’ questions that the company for now is sticking with its estimate that it will grow to 200 locations from its current total of approximately 100. The current count consists primarily of Cheesecake Factory restaurants, with about half a dozen of its new concept, Grand Lux Cafe, now operating.

Overton said the eventual total of Cheesecake Factory locations “could be more than 200, but we’re not sure what that number is, so we’re still using 200.” The Grand Lux concept “is coming along nicely, and I don’t think we need to think of a third concept yet, but obviously down the line, in order to keep our growth rate up, we will probably need something,” Overton said. But the company wants to make sure the Grand Lux concept is on track before it starts thinking of a third concept, he said.

The Cheesecake Factory’s latest quarterly results showed net income per share that rose 32% to 29 cents and comparable store sales that increased 1.7% in spite of the shift of the Easter holiday from the second quarter of fiscal 2004 to the first quarter of fiscal 2005. The company estimated that comparable sales would have increased approximately 2.2% without the impact of the Easter holiday shift.

Overton pointed out that comparable sales at the Grand Lux Cafe locations increased approximately 3.6%, including strong sales at the two newest Grand Lux restaurants in Dallas and Houston. The company has previously stated it plans to open two more Grand Lux Cafes this year as part of an 18-store expansion for this fiscal year. It has already opened seven new Cheesecake Factory locations, with two additional openings planned for the third quarter and nine in the fourth quarter.