Cheesecake Factory cooks up a recipe for success
People like rich, tasty food — and sweet, smooth desserts.
That’s a recipe the Cheesecake Factory Inc. has been following for more than three decades.
The company’s roots can be traced to the home kitchen of Evelyn Overton, who ran a small baked goods business from the family home in Detroit in the 1940s. She and her husband, Oscar, later moved to California to launch a bakery.
In 1978, their son, David, opened the first Cheesecake Factory restaurant in Beverly Hills.
“I didn’t know what I was doing,” David Overton told The Times in a 2011 interview. “And I really didn’t like the name. I thought we had so much more to offer.”
Today, the Calabasas company operates 180 restaurants worldwide, consisting of 168 Cheesecake Factory restaurants, 11 Grand Lux Cafe restaurants and the RockSugar Pan Asian Kitchen in Century City.
The restaurants are known for their massive menus, filled with high-calorie comfort foods, full bars and dozens of signature cheesecakes.
The website Thrillist reviewed all 34 of the company’s cheesecakes in July, giving the top rating to something called “Chris’ Outrageous Cheesecake.” Thrillist said the concoction is layered with “chocolate cake, chewy brownie, toasted coconut-pecan frosting and chocolate chip coconut cheesecake.”
Even with U.S. residents eating out less often, the Cheesecake Factory has posted impressive financial results, with annual revenue approaching $2 billion. Overton declined to be interviewed until after the company’s earnings announcement Wednesday.
The latest
The Cheesecake Factory is pushing further into the worldwide market.
The company opened its first overseas restaurants in 2012 — one in Kuwait and two in Dubai, including the world’s largest Cheesecake Factory at the Mall of the Emirates. The restaurants are operated by Alshaya Trading Co., which has the rights to open additional Cheesecake Factory restaurants in the Middle East, North Africa, Russia, Turkey and Europe.
In the coming year, the company expects to open three to five more restaurants in the Middle East and Mexico City.
“The Cheesecake Factory restaurants appeal to a diverse guest base across a broad demographic range,” the company said in its most recent annual report.
Accomplishments
The company has made a remarkable turnaround in recent years.
During the Great Recession, with consumers eating out less often, the company’s stock price plummeted to $5.32 in November 2008, an 80% fall from its high point of 2007.
The company retrenched, scaled back expansion plans and regained its appeal with investors as the economy recovered.
It has reported quarter-over-quarter sales increases for the last 15 quarters at restaurants open at least one year.
Analysts expect the company to report record revenue and earnings for its fiscal year ended Dec. 31.
Challenges
There is one group that’s not too fond of the Cheesecake Factory: health advocates.
The Center for Science in the Public Interest blasted the restaurant chain last year, noting that its Crispy Chicken Costoletta has a whopping 2,610 calories, the same as a 12-piece bucket of KFC Original Recipe and 30% more calories in one meal than a typical adult should eat in a full day.
In his 2011 interview with The Times, Overton noted that the company has a “Skinnylicious” menu filled with low-calorie, healthful options. But he also said the company is, by and large, an indulgent brand.
“It’s hard to make delicious food without some calories,” he said. “Going out to a restaurant like this is very celebratory. The hard-core guest wants what they want. They have their favorites, and that’s what they order.”
On the business side, the company is vulnerable to rising food costs. Some analysts expressed concern in October when the company cautioned that such costs, particularly the price of shrimp, might affect its bottom line.
The company’s management has said it expects a 4% to 5% increase in the cost of food this year, which could slash 7 to 10 cents from its earnings per share.
Also, an economic downturn could affect consumer spending the way it did during the recent recession.
Andy Barish, an analyst with investment bank Jefferies, said the company could face problems if “higher costs and weak job market impact consumer spending.”
Analyst views
Ten analysts recommend buying Cheesecake Factory stock, 16 suggest investors hold onto it, and one says the stock should be sold. They estimate the stock will be trading at $50.50 a share one year from now.
Cheesecake Factory “remains one of the most insulated and stable brands in restaurants and should continue to outperform its casual dining peer group,” Will Slabaugh, an analyst with investment banking firm Stephens Inc., said in an October research note.
“In the current uncertain environment, we think the market will continue to reward the relative winners, and [the company’s] consistency earns it that position,” Slabaugh said.
