Published on 29 May 2024 on Zacks via Yahoo Finance

Here's Why You Should Retain Cheesecake Factory (CAKE) Stock

The Cheesecake Factory Incorporated CAKE is likely to benefit from strong Flower Child performance, its rewards program and unit-expansion efforts. This and the focus on FRC concepts and emerging brands bode well. However, labor and commodity inflation is a concern.Let us discuss the factors that highlight why investors should retain the stock for now.

Factors Driving Growth

Cheesecake Factory focuses on Flower Child restaurants to drive growth. In the fiscal first quarter, the company reported strong comparable sales and demand trends at newer locations for Flower Child. In the past 18 months, the company successfully implemented several operational and supply chain improvements to enhance the guest experience and drive cost efficiencies. The improvements include the introduction of a kitchen display system across all restaurants (leading to better order throughput and operational efficiencies) and the replacement of the loyalty platform with a more scalable solution.During the fiscal first quarter, Flower Child sales increased 10.2% year over year to $34.5 million. Given the strong consumer demand, an attractive unit economic profile and solid infrastructure support, the company is optimistic about accelerating growth in upcoming periods.Increased focus on the Cheesecake rewards program bodes well. During the reported quarter, the company registered increased member activity and engagement levels. CAKE stated progress in terms of the development of the program. Ongoing tests are being conducted on acquisition strategies and activation campaigns to discern the elements resonating with reward members. The company is optimistic and anticipates the initiatives to boost membership enrollment and engagement and drive frequency in upcoming periods.Cheesecake Factory continues to focus on the development front to drive growth. Subsequent to the quarter-end, the company opened one Cheesecake Factory restaurant internationally under a licensing agreement in Asia. In the fiscal 2024, the management expects to open 22 new restaurants. This includes three to four Cheesecake factories, six to seven North Italia's, six to seven Flower Child and six to seven FRC restaurants.The company emphasizes FRC-related differentiated concepts and emerging brands to drive growth. The company's Culinary Dropout and Blanco serve collectively as an ecosystem for talent, menu and design enhancement. The company targets an average FRC unit size ranging from 3,500 to 15,000 square feet. It aims for an average annual unit growth of 10-15% for the entire other FRC portfolio, supplemented by market tests for potential growth concepts.