The Cheesecake Factory Incorporated CAKE has shown strong stock performance in recent months. Over the past six months, the stock has jumped 22.1%, significantly outperforming the Zacks Retail – Restaurants industry’s decline of 0.5%. It has also fared better than the broader Zacks Retail-Wholesale sector’s 2.1% growth and the S&P 500 index’s 1.6% decline during the same period.

Cheesecake Factory continues to benefit from strong consumer demand, improving comparable sales and restaurant openings. The solid performance of Flower Child and a focus on operational efficiency further support growth. The company's investments in differentiated concepts and emerging brands strengthen its long-term growth potential.

As of Wednesday, the stock closed at $48.27, below its 52-week high of $57.32 but above its 52-week low of $33.05. In the past six months, CAKE has also outperformed industry players like The Wendy's Company WEN, Shake Shack Inc. SHAK and Chipotle Mexican Grill, Inc. CMG. During the said time frame, shares of WEN, SHAK and CMG have declined 13.6%, 15.8% and 15.9%, respectively.

CAKE Stock’s Six-Month Price Performance

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Factors Favoring Cheesecake Factory

Steady Growth in Comps: Cheesecake Factory continues to deliver positive comps growth, driven by strong consumer demand and pricing adjustments. In the fourth quarter of fiscal 2024, comps at Cheesecake Factory restaurants increased 1.7% year over year, outperforming the industry. The rally was supported by a 1.7% rise in the average check, driven by a 4.7% increase in menu pricing. However, a 3% negative impact from the mix and a 0.7% decline in customer traffic partially offset the gains.

Expansion to Drive Growth: CAKE remains committed to expanding its footprint as part of its long-term growth strategy. The company is actively increasing its restaurant count across multiple brands to strengthen its market presence. In the fourth quarter of fiscal 2024, the company expanded its footprint with nine restaurant openings, including three North Italia locations, two Flower Child locations, two Fox Restaurant Concepts restaurants and the relocation of two Cheesecake Factory restaurants.

The company intends to accelerate unit growth in 2025, with plans to open up to 25 restaurants throughout the year. Approximately 15 locations are likely to open in the first half, with the remaining units launching in the latter half. The company expects $190-$210 million in Capex for unit development and restaurant maintenance, targeting 7% long-term unit growth.

Digitalization Efforts: The company is strengthening its digital capabilities to enhance customer convenience and drive sales. Investments in technology and delivery partnerships are strengthening its off-premise business and expanding its reach. In the fourth quarter of fiscal 2024, off-premise sales contributed 21% to restaurant sales. The company has been seeing steady performance in the delivery channel and expects targeted marketing efforts to drive growth.

Menu Innovation & Operational Efficiency: Cheesecake Factory is enhancing its menu with new offerings that cater to diverse tastes while maintaining quality. During the fourth-quarter fiscal 2024 earnings call, the company highlighted the launch of more than 20 items across various cuisines and price ranges. Positive guest feedback reflects a strong demand for the updated menu. Going forward, the company remains focused on innovation to stay competitive while avoiding heavy discounting.

Meanwhile, the company's focus on operational improvements and strong management practices is driving better efficiency, leading to an improvement in restaurant-level margins. In the fiscal fourth quarter, restaurant-level margins reached 18.4%, marking the highest level in more than seven years. Strong management and improved staff retention are expected to support ongoing operational enhancements.

CAKE Stock’s Upward Estimate Revisions Signal Strength

Analysts are becoming increasingly bullish on Cheesecake Factory’s earnings potential. Over the past 30 days, the Zacks Consensus Estimate for CAKE’s fiscal 2025 EPS has climbed from $3.72 to $3.70, signaling growing confidence in the company’s outlook.

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The company is well-positioned for strong earnings growth, with projections indicating an 8.1% year-over-year increase in fiscal 2025. Meanwhile, revenues are expected to grow at a healthy pace, with a 5.6% rise anticipated for the year, solidifying optimism around the company’s growth trajectory.

CAKE Stock Trades at a Discount

The company is currently valued at a discount compared with its industry on a forward 12-month price-to-earnings (P/E) basis. CAKE’s forward 12-month price-to-earnings ratio stands at 12.68, lower than the industry’s 26 and the S&P 500's 20.57.

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Technical Indicators: Mixed Signals

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Cheesecake Factory’s stock is trading above its 200-day simple moving average (SMA), indicating solid long-term momentum. However, it is below its 50-day SMA, reflecting near-term volatility.

What May Pull Back CAKE Stock?

Although Cheesecake Factory is improving operational efficiency, rising costs are concerning and can impact its profitability. Higher labor expenses, pre-opening costs for new locations and increased spending on sales initiatives are other concerns.

In fiscal 2024, labor expenses were $1.26 billion, up from the $1.22 billion reported in the prior-year quarter.
 
The company anticipates the cost pressures to continue for some time. For the first quarter of fiscal 2025, it anticipates commodity inflation to be in the low-single digits and net total labor inflation in the low to mid-single-digit range.

Conclusion: Hold CAKE Stock for Now

Cheesecake Factory's focus on expansion, digital innovation and operational efficiency supports its long-term growth prospects. While cost pressures and near-term market fluctuations remain key challenges, analysts remain optimistic about its earnings potential. Investors may want to monitor further developments, while existing shareholders could consider retaining this Zacks Rank #3 (Hold) stock in their portfolios, given its steady fundamentals.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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