Is it time to invest as Cheesecake Factory approaches all-time highs?

Cheesecake Factory stock is up 14% today after the company announced its Q3 earnings. In the process, the stock has recorded a new 52-week high and is closing in on its all time high.

The company reported at EPS of $0.58 against expectations of $0.49.

Compared to a year ago, the company increased its EPS by 49%!

Cheesecake is gaining market share

The main reason behind the stock’s current rally is the fact that it isn’t just earning more but is also penetrating further into the market.

The restaurant industry has had a slow 2024.

While some have struggled to maintain margins and keep food prices low amid increasing costs, others have had to deal with customer backlash for reducing portion sizes.

In short, the American consumer has been ruthless and has preferred opting for value rather than taste.

Despite all this, Cheesecake Factory has not only managed to increase comparable sales but also foot traffic at its restaurants.

This is what the CEO had to say about the company’s execution in the quarter:

Execution within our restaurants was exceptional with our operators delivering significant improvements in labor productivity, hourly staff and manager retention, and guest satisfaction scores

Margin improvement continues to impress

The quarterly earning also shows that the company’s margins continue to improve, a factor that other restaurants are finding hard to negate.

In the previous quarter, the company posted its highest margins in the previous 6 years.

The fact that it has continued this quarter shows that the concept that CAKE follows is here to stay.

Other restaurants like IHOP or Chili’s have had to face massive restaurant closures mainly because their unique models were operating on thin margins.

When the giong gets tough, the company has nowhere to go except in loss. Restaurant closures follow in a bid to stay afloat in tough times.

For Cheesecake Factory, the margins prove the model is worth working on, even if the company’s highly leveraged position makes it a risky investment.

The secret behind Cheesecake’s sales

Unlike many other restaurants, the company standardizes its food by training its labor rather than using centralized preparation systems, which are costly.

This means that every time you visit a Cheesecake restaurant, you’re likely to be treated to a slightly different taste, but in a good way.

This also aligns well with the company’s policy of rotating its menu twice a year. This makes customers come back to try something different.

The rotation of menu also helps the company raise prices without making it too apparent.

If you aren’t selling the same thing as before, it is much easier to introduce a new product at a slightly higher price point.

These tactics aren’t easy to pull off, but this company does it, which is what makes it so special.

The reward for the company lies in improving margins even in high inflation.

The reward for investors comes in the form of rallies likes todays.

If the rally continues, it won’t take long for the company to record new all time highs.