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Cheesecake on Expansion Spree, Concludes $308M Buyout Deal

Zacks Equity Research

The Cheesecake Factory Incorporated CAKE has completed the acquisitions of North Italia and Fox Restaurant Concepts, including Flower Child, for $308 million. In the past three years, Cheesecake Factory had invested $88 million in the North Italia and Flower Child concepts, with an intention to purchase the same.

Fox Restaurant Concepts has operations in 47 restaurants across eight states and Washington D.C. Currently, North Italia operates in 21 locations across 10 states and Washington D.C.

Backed by these acquisitions, the company is expected to deliver solid top-line growth, going forward. In 2018, its total revenues grew 3.2% compared with the prior-year figure, courtesy of robust comparable sales. In the second quarter of 2019, Cheesecake Factory’s revenues grew 2.6% year over year. Notably, menu-innovation and advanced digital capabilities are the strengths of the company.

Strategic Expansion to Drive Growth

Cheesecake Factory has been expanding in domestic as well as international markets. Of late, the company is foraying into lucrative markets like the Middle East, North Africa, Central and Eastern Europe, Russia, Turkey, Mexico, Kuwait and Lebanon and Chile. In 2019, the company plans to open five company-owned restaurants — including one in Oxnard, CA. Overall, management believes that there is potential for 300 Cheesecake Factory locations in 2019, expecting to drive at least 3% unit growth.

The company is also partnering with delivery partners to drive sales. Furthermore, Cheesecake Factory’s technology-enabled initiatives are doing well, with a positive feedback on its mobile payment app — CakePay. Its exclusive national delivery partnership with DoorDash is commendable as well. Moving ahead, Cheesecake Factory expects to reap benefits from these collaborative marketing opportunities.

These apart, Cheesecake Factory is witnessing incremental sales from its delivery service, which continues to roll out nationwide. Additionally, the company is consistently strengthening its to-go business including online ordering capability. This is a major contributor to the company’s strong off-premise sales channels growth. Resultantly, its off-premise business reached 14% of total sales in 2018 compared with 12% in 2017. Meanwhile, in the second quarter of 2019, off-premise business reached 16% of total sales.

In the past month, shares of this Zacks Rank #3 (Hold) company has gained 2.6% against the industry’s 6% decline.


Key Picks

Better-ranked stocks worth considering in the same space include Brinker International, Inc. EAT, Chipotle Mexican Grill, Inc. CMG and Cracker Barrel Old Country Store, Inc. CBRL, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Brinker International, Chipotle Mexican Grill and Cracker Barrel Old Country Store have an impressive long-term earnings growth rate of 5.9%, 18.4% and 9.5%, respectively.

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