Stock Puts Icing on the Cake

Ideally, investment in a new stock issue should incrementally add to the economy’s growth at a faster pace than if the company had been forced to finance itself otherwise. That result would suggest the market was right to embrace the firm.

When it works out that way, everybody involved wins.

Cheesecake Factory, for example, was a profitable, five-store restaurant chain a year ago, well-known in the Southland for its extensive menu, moderate prices and big portions. Oscar and Evelyn Overton founded the business in 1972 as a bakery; their son David opened the first restaurant in 1978 in Beverly Hills.

William Kling, Cheesecake’s finance chief, said a stock offering wasn’t critical to the firm’s future. “We could have financed our expansion” without it, he said. “But we would not have grown as quickly. At most, we might have done one new (site) a year.”

With the $21.9 million raised in a 1992 public offering, Cheesecake has opened restaurants this year in Newport Beach and Brentwood and soon will open in Atlanta. Next year, stores will open in Miami, Houston and suburban Washington. The company now employs 2,000 people, compared to 1,000 a year ago.

Going public, Kling said, has helped Cheesecake with more than just its finances. It attracts good managers more easily, he said. More significant, “It really makes you focus your business plan.”

Wall Street likes what it sees so far. Cheesecake stock, $20 a share in the initial offering, has jumped 45% to $29 on Nasdaq now.

Meanwhile, the Overton family and assorted investors who helped build the business reaped $28 million by selling some of their shares in the offering. David Overton, 47, still owns 18.4% of the stock, worth $33 million at the current price.