The Cheesecake Factory
The Cheesecake Factory
Basic company’s operations
The Cheesecake Factory incorporated was founded in 1972 in Calabasas Hills, California. The company owns and operates upscale, casual dining and full service restaurants in the United States. As at the end of April 2013, the company operated 174 casual dining restaurants of which 162 were under the Cheesecake Factory Inc. mark. Out of the remaining restaurants,11 restaurants were under the Grand Lux café mark and one restaurant under the Rock Sugar Pan Asian kitchen mark.
The Cheesecake restaurant offers a distinctive range of high quality dining experience specializing in baked desserts and other dining products. In addition, it also produces dining services for other food services operators, distributors and retailers. As a matter of fact, the Cheesecake factory Inc. has excelled in the restaurant industry within the United States by offering an extensive menu of dining experience to its esteemed customers. The fact that the company utilizes an upscale casual service in serving its customers puts it at a higher end in comparison with its main competitors(Cheese cake, 2013).
As earlier noted, Cheesecake factory incorporated operates in a diverse environment ranging from Cheesecake factory, Grand Lux Café to Rock Sugar Pan Asian kitchen marks in the United states. Operating under the Grand Lux Restaurant mark gives Cheese cake factory incorporated a chance to offer special menu for both the American and International standards due to their unique locations. Moreover, operating under the Rock sugar Pan Asian Kitchen mark allows the Cheesecake Factory to offer a unique menu in an upscale casual dining concept for Southeast Asia. This concept allows the company to serve Malaysian, Thai, Indonesian, Singaporean, Indian, and Vietnamese up scale menus.
The Cheesecake Factory Incorporated has two bakery production units. One is in the Calabasas Hills, California and the other one in Rocky Mount, N.C. its main products are baked desserts and several other top menus for its customers. As at April, 2013 the company had 33,900 full time employees.
The Cheese factory restaurant is committed to provide high quality dining menu and at moderate prices. The company has achieved this by offering innovative menu in an up scale, efficient and friendly manner. The company attracts an extensive range of guests across the world. Its extensive and all rounded menu puts cheesecake restaurant at a high end bearing in mind its provision of all dining preferences. Cheesecake restaurant dining experience accommodates for lunch, dinner, mid afternoon and mid night menu for its operations (Cheese cake, 2013).
The cheese cake restaurant menu contains an approximate of more than 200 items. This includes pizzas, appetizers, seafood, chicken, steaks, pastas, sandwiches, omelets, and desserts. Apart from the desserts which are produced in the company’s bakery production facility, all other menu items are prepared at the restaurants premises using high quality ingredients and innovative recipes. The extensive selection of Cheesecake menu enables the company to stand tall behind its competitors.
Additionally, Cheesecake restaurant uses foods derived from the natural environment. For instance, the company uses natural chicken, premium beef, fresh fish from the lake or river, cooking oils without tans etc. moreover, the restaurants offer certified organic teas and sustainably grown coffee for its drinks. Furthermore, the restaurants operate and serve its customers according to the laid down rules and regulations of United States Foods and Drugs Administration Food Labeling Guidelines.
The Cheesecake Restaurant Top Executives and Board of Directors
The Cheesecake Restaurant has six top executives in its corporate governance who head the four main committee charters in the organization. The company has four main committee charters which include; audit, compensation, governance and enterprise and risk management advisory committees.The following table presents brief bios of the top executives and board of directors of Cheesecake factory Incorporated as to date.
Cheesecake Restaurant Top executives and Board of Directors
| Directors Name | Director’s bios | |
| David Overton,
Chairman of the Board and Chief Executive Officer |
Has been the director of cheesecake restaurant since 1992. He is a co-founder of the company in collaboration with his parents Evelyn and Oscar. He created and named the company Cheesecake in 1978 and first operated it in Beverly Hills, California. He later expanded the restaurant to gain a national wide look and developed the Grand Lux Café and Rock Sugar Pan Asian Kitchen concept. Under his leadership, the company the company increased its revenues to $1.8 billion in 2011. Cheesecake factory emerged the best in average annual sales with $10.2 billion among the restaurants in the casual dining industry. Due to his impressive track records, Mr. Overton has received several awards including “the executive of the year Award” from Restaurant and Institutions magazine. He is recognized worldwide as the “most outstanding and innovative talent in food service operations.” Ernst and Young Los Angels region recognized Mr. Overton as the “Entrepreneur of the year” in year 2012 in the food service category. | |
| Alexander L. Cappello | He is the chairman and Chief Executive officer of Coppello Capital corp. He has over 30 years of global experience in corporate finance and management. Mr. Alexander holds several positions in different organizations in United States. Currently, he is a Trustee for the University of Southern California. Furthermore, he serves as a director of California Republic Bank and a Trustee of the City of Hope. He has served as an employee and director of several public companies such as Genius Product Inc., Cytrx Corp, Inter-Tel Inc. among others. Mr. Alexander is currently the chairman of the Compensation Committee and a member of the Audit and Enterprise and Risk Management committees. | |
| Jerome I. Kransdorf | He has served as the director of Cheesecake Factory since 1997. Mr. Jerome is the president of JakDirect and also serves as the vice president of J & W, Seligman & Co. Inc. he has also served for several years in senior management levels at Wertheim & Co and its successor companies. He is serving as the lead director and chairman of the corporate governance committee and a member of the Compensation committee in Cheesecake Factory Inc. | |
| Laurence B. Mindel | Has served as director since 1997. He has over 40 years experience in the restaurant industry. Currently, he is the managing director of PoggioTrattoria, an award winning Italian Company. He is also a co-founder o9f several restaurants such as Ciao, Prego MacArthur among others. He has received a professional honorfrom Nation Restaurant News “Golden Chain Award” and “Golden Plate Award. Mr. Laurence serves as a member in the Compensation and Governancecommittees. | |
| David B. Pittaway | Has been a director at Cheesecake Inc. since 2009. He also serves as the senior managing, vice president and secretary of Castle Harlan Inc. a private equity firm. Moreover, he has been the vice president, chief financial officer and director of Branford chain, Inc. Mr. David serves as a director in several institutions boards such as Bravo Brio Restaurant Group,Morton Restaurant Group, McCormick&Schmick’s Seafood Restaurant. He is serving as the chairman of the Audit committee and a member of Enterprise and Risk Management committee. | |
| Douglas L. Schmick | He has been a director since 2012. He has oover 40 years experience in up scale casual dining restaurants. He is also a cofounder of McCormick &Schmick’s Seafood Restaurant. He served as a board of director in this restaurant and then was promoted to be its chairman. Mr. Douglas serves as a member of the audit committee. | |
| Herbert Simon | He has ser6ved as a director since 2011. Mr. Herbert has extensive experience in the real property industry. He has been developing high profile retail facilities, real estate ownership etc. He is the former chairman of National Basketball Associationboard of Governors. Additionally, he has interest in community services and civil organizations. Mr. Herbert serves as Cheesecake factory Inc. as a member of the compensation and Governance Committee. | |
Cheesecake factory Inc. important events and transactions for the last five years
Since the inception of the first cheesecake restaurant in 1978 in Beverly Hills, California, cheesecake brands has continued to endure and remain relevant in the restaurant industry up to date. According to the restaurant’s chief executive officer, the company has continued to be true to its guests. Its commitment to offer great food and excellent services alongside innovative menu options has maintained its good will and dedication to the customers. The company’s approach of offering an up scale casual dinning facility since inception of cheesecake factory has continued to be in operation to date providing people with exceptional experience services.
In year 2012, the company delivered for a third time consecutively positive restaurant sales backed by an impressive record of increase in guest traffic. For instance, cheesecake overall sales results were noticeably better than the overall restaurant industry. The increase in sales volume has enabled the company to realize high profits, thereby, enabling it to expand its operating margin. Additionally the company realized a share growth of 15 percent in earning per share. This fact has enabled cheesecake factory to keep up with its long term financial goal (Cheese cake, 2013).
As a matter of fact, cheesecake factory has been able to return $114billion to its shareholders through repurchasing of shares. This led to the company resolving that they will be paying dividendsin the efforts to maximize shareholders value.
Another important event that took place in cheesecake factory incorporation over the last years is the genesis of global expansion. This has seen the opening of three cheesecake factories in Middle East under the licensing agreement. This was made possible by investing human capital extensively in the aiding of the initial openings. This expansion strategy has seen the protection of cheesecake brands, thereby, ensuring its survival in the highly competed restaurant industry.
The introduction of Grand Lux Café concept is also an important transaction that has been undertaken by cheesecake factory in the recent years. This concept has enabled the company to extend its services to more new locations, thereby, opening more ventures and opportunity for cheesecake restaurants.
Last year, cheesecake factory Inc. appointed theprevious chief executive officer-David Gordon to be its new president. This represented a positive change of corporate governance in the company placing the company at a better end. In addition, the company also added two more restaurant industry veterans to its board of directors. This included Larry Mindel and Douglas Schmick, thereby, strengthening the company’s board of directors in terms of real estate ventures, restaurant operations and financial management.
The cheesecake factory Inc. also added one bakery production facility in Rocky Mount, North Carolina increasing the factories bakery production growth. This was in line with the increased number of new restaurants, improved guest traffic as well as increased numbers of external customers. As a result of this, cheesecake restaurant resolved to increase its network of restaurants to 300 in United States.
The cheesecake restaurant enjoyed yet more progress in year2012 with its opening of eight new restaurants. For instance, the company opened the following new restaurants in Salt lake City-Utah, Hanover-Maryland, Lawrenceville-New Jersey, Woodbridge-Virginia, Friendswood- Texas, Orland Park-Illinois and in Miami, Florida (Cheese cake, 2013).
The opening of new restaurant between 2010 to date has enabled cheesecake restaurant to achieve a sales growth of more than 10 percent which is more than the overall company’s average. This has been achieved as a result of investing in great real estate standards and identifying the best sites.
From the fact that cheesecake factory offers highly, quality and innovative menu, it won “The 2012 Menu Masters Award for Healthful Innovations,” for it’s“SkinnyLicious menu.” In addition, cheesecake restaurant was named as the “Most preferred casual brand in 2012 and 2013” by Nation’s Restaurant News’ Consumer Picks report. Furthermore, one member of the board of directors; David Overton, was recognized as the “Entrepreneur of the year” in the food service category by Ernst and Young. Apart from this awards, cheesecake factory Inc. has received other recognitions such as the “America’s best dessert,” “world most admired company” in the food service category.
Cheesecake factory Inc. Financial Analysis
Following the adoption of expansion strategy, cheesecake factory has achieved tremendous increase in its sales volume and profitability margins over years. This has enabled the company to continue remaining relevant in the restaurant industry despite the cut throat competition. For instance the company realized $463 million in revenue in 2012 which represented an increase of 6.3 % over the year. In addition, cheesecake realized a lot of revenues from the three restaurants in the Middle East superseding the company’s expectation. Furthermore, the earning per share over the first quarter of the year went up to $0.47 placing the shareholders at better financial position(Cheese cake, 2013).
The following data presents the key financial indicators for Cheesecake factory Inc. for the last five years.
FINANCIALS
| 2008 | 2009 | 2010 | 2011 | 2012 | |
| Revenue (USD Millions) | 1,602 | 1,602 | 1,659 | 1,758 | 1,809 |
| Gross margin % | 40.9 | 42.4 | 18.2 | 17.8 | 18.7 |
| Operating Income USD Millions | 87 | 74 | 128 | 133 | 139 |
| Net income USD Millions | 52 | 43 | 82 | 96 | 98 |
| EPS USD | 0.82 | 0.71 | 1.35 | 1.64 | 1.78 |
| Dividends USD | – | – | – | – | – |
| Pay out ratio % | – | – | – | – | – |
| Shares millions | 64 | 60 | 60 | 58 | 55 |
| Operating cash flow USD millions | 169 | 197 | 165 | 196 | 195 |
| Free cash flow | 84 | 160 | 123 | 118 | 107 |
| Free cashflow per share USD | 1.32 | 2.66 | 2.04 | 1.99 | 1.94 |
| Working capital USD | 4 | -28 | -17 | -47 | -23 |
From the financial analysis presented above, it is evident that Cheesecake restaurant has had a steady increment in its revenues from year 2008 to 2012. This can be attributed to the tremendous growth that the company has been undertaking. For instance, the opening of several other restaurants on the international arena will have a positive increase in the company’s revenue in the future. For instance, cheesecake restaurant has increased its revenues from $1,602 million in 2008 to 1,809 in 2012. Similarly, there has been a steady increase in the operating income and net income at the same period. This trend is also expected to prevail even in the future (Cheese cake, 2013)..
The Cheesecake factory Inc. has not been dividend since inception but the annual general meeting held this year proposed that shareholders will now start earning dividends on their wealth.
The following are the key financial ratios of cheesecake factory Inc.
Margin of sales %
2008 2009 2010 2011 2012
| Revenue | 100 | 100 | 100 | 100 | 100 |
| COGS | 59.13 | 57.61 | 81.85 | 82.17 | 81.25 |
| Gross margin | 40.87 | 42.39 | 18.15 | 17.83 | 18.75 |
| SG & A | 5.95 | 6.29 | 5.77 | 5.48 | |
| Other | 29.49 | 31.50 | 4.66 | 4.76 | 5.32 |
| Operating margin | 5.43 | 4.60 | 7.73 | 7.59 | 7.67 |
| Net interest income | -0.87 | -1.40 | -1.03 | -0.25 | -0.26 |
| EBT margin | 4.56 | 3.20 | 6.69 | 7.35 | 7.41 |
Profitability ratios
| 2008 | 2009 | 2010 | 2011 | 2012 | |
| Tax rate % | 28.26 | 16.52 | 26.44 | 25.88 | 26.54 |
| Net margin % | 3.26 | 2.67 | 4.92 | 5.45 | 5.44 |
| Asset turn over (average) | 1.40 | 1.46 | 1.60 | 1.71 | 1.71 |
| Return on assets % | 4.57 | 3.91 | 7.88 | 9.33 | 9.31 |
| Average financial leverage | 2.52 | 2.03 | 1.74 | 1.88 | 1.88 |
| Return on equity % | 10.30 | 8.84 | 14.74 | 16.87 | 17.54 |
| Return on investment % | 5.12 | 3.46 | 11.48 | 16.22 | 17.54 |
| Interest coverage | 5.95 | 3.19 | 7.61 | 27.26 | – |
From the ratios above, there has been a significant increase in on the profitability of the company. For instance, return on assets has increased from 3.91 % in 2009 to 9.31 % in 2012. This is a good reason to justify the reason behind cheesecake expansion strategy in foreign countries. Similarly, return on equity and return on investment have also increased from 2008 to 2009. For instance return on investment capital has increased from 5.12 % in 2008 to 17.54 % in 2012. Whereas interest coverage had been paid since 2008, it was not provided for in the last fiscal year.
Liquidity ratios
| 2008 | 2009 | 2010 | 2011 | 2012 | |
| Current ratio | 1.02 | 0.86 | 0.92 | 0.79 | 0.91 |
| Quick ratio | 0.75 | 0.75 | 0.64 | 0.44 | 0.58 |
| Financial leverage | 2.52 | 2.03 | 1.74 | 1.88 | 1.88 |
| Debt/equity | 0.61 | 0.19 | – | – | – |
Liquidity ratios generally measure the financial health of a company. Current ratio is computed by dividing the current assets of the company by its current liabilities. In this case, cheesecake factory current ratio has continued to improve since 2008. This can be attributed to its persistent strength in its working capital and, therefore, able to honor its obligations as they fall due. A similar scenario is seen it the company’s quick ratio.
The following table summarizes cheesecake factory efficiency ratios
| Efficiency | 2008 | 2009 | 2010 | 2011 | 2012 |
| Receivables turnover | 134.52 | 134.12 | 120.53 | 127.74 | 139.74 |
| Inventory turn over | 40.26 | 40.72 | 60.05 | 56.37 | 51.53 |
| Fixed assets turn over | 1.86 | 1.94 | 2.15 | 2.32 | 2.38 |
| Assets turn over | 1.40 | 1.46 | 1.60 | 1.71 | 1.71 |
Cheesecake Factory Inc. market performance
From the financial results of the first quarter of the year that has been released this year, Cheesecake Company has reported a 15 percent increase in its profit which has been realized as a result of increased guest traffic and possessing a great percentage of the total market share in the restaurant industry. In addition, the company has increased its sales revenue by 14.8 percent to $28.4 million, gathering a 52 percent share as opposed to 42 percent shareholding in 2011. Its total revenues also increased by 5.6 percent representing $454.7 million for the first quarter of 2012. The same store sales increased by 1.7 percent throughout the country, but reduced by 2.9 percent for Grand Lux Café (Cheese cake, 2013).
According to the company’s chair and chief executive officer David Overton, the company has realized 10 consecutive quarters of positive same store sales companywide. The key driver to this immense growth has been attributed to offering of quality and innovative menu. This has seen guest traffic increase by 1.2 percent.
Cheesecake factory Inc. has increased the number of restaurant chain in different countries allowing it too grow its market share without offering discounts. As a result, the company has also continued to develop its marking efforts by utilizing social media. For instance the company will allow Facebook fans to celebrate in the National cheesecake Day on 30th July, this year by trying “the new Oreo Dream Extreme Cheesecake.”
The restaurant industry is highly competitive. Not only does the company face competition from other large restaurants but also threatened by home made prepared food. The fact that there can be new entrant in the market also posses a major threat to the company. The following table summarizes the five main competitors in the restaurant industry and their performance;
| Market capitalization | Net income | P/S | P/B | P/E | |
| Cheesecake factory Inc. | 2,172 | 102 | 1.2 | 3.7 | 21.7 |
| McDonald’s corporation | 101,798 | 5,468 | 3.7 | 6.7 | 18.9 |
| Starbucks corporation | 48,014 | 1,514 | 3.5 | 9.0 | 32.6 |
| Yum brand Inc. | 31,560 | 1,476 | 2.5 | 13.8 | 22.3 |
| Compass Group PLC | 24,789 | 602 | 1.0 | 5.0 | 27.5 |
Conclusion
The cheesecake factory Inc. is well positioned to sustain and increase its same store sales growth following the increased guest trafficking realized in the recent years. The company is expected to remain strong and vivid in the restaurant industry due to its unique dining experience.Investors should buy cheesecake factory Inc. stocks because;
- Cheesecake brands are strongly recognized due to its effort of utilizing up scale casual dining exposure. Since its inception, cheesecake has been offering all dining preferences day and night.
- The company has developed measures to expand beyond the United States by opening three restaurants in Middle East. Additionally, two more restaurants are in the pipeline and will be opened soon.
- The cost of foods is relatively favorable despite huge input cost from other similar restaurant companies.
Despite the strong evidence to buy cheesecake factory Inc. stocks, the company has been challenged due to its relatively less international presence, seasonality of its product and they continued sluggishness performance of Grand Lux cafes. Inspite of these challenges, investors should buy cheesecake factory Inc. stocks as its future is very bright as revealed in the last financial results released for the first quarter of the year.
Reference
CHEESECAKE FACTORY INC/THE (CAKE:NASDAQ GS): Financial Statements – Businessweek. (n.d.).Investing & Stock Research by Company and Industry – Businessweek. Retrieved May 18, 2013, from http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=CAKE
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