Here's Why Investors Should Retain Cheesecake Factory Stock for Now

The Cheesecake Factory Incorporated CAKE is likely to benefit from unit expansion efforts, strong Flower Child performance and marketing efforts. Also, emphasis on the loyalty program bodes well. However, an uncertain macroeconomic environment and elevated expenses are concerns.

Let us discuss the factors highlighting why investors should retain the stock for the time being.

Factors Driving Growth

Cheesecake Factory focuses on the development front to drive growth. During the fiscal first quarter, it opened eight restaurants, including three North Italia, three Flower Child and two FRC units. Following the quarter's end, three additional restaurants were opened, consisting of one Flower Child location and two FRC restaurants. The company intends to accelerate unit growth in 2025, with plans to open up to 25 new restaurants throughout the year. Approximately eight locations are expected to open in the fiscal second quarter, with the remaining units launching in the back half of the year. The company still predicts $190-$210 million in Capex to support the unit development and maintenance of its restaurants. It anticipates achieving a long-term target unit growth of 7% in the upcoming periods.

The company remains highly optimistic about Flower Child's growth potential as sales continue to show upward momentum. Flower Child delivered a robust performance in the first quarter of fiscal 2025, with sales surging 26.1% year over year to $43.5 million, up from $34.5 million in the prior-year period. This growth was supported by a 19.2% increase in total operating weeks to 491 and a 5.8% rise in sales per restaurant operating week, which reached $88,515. Comparable sales rose approximately 5%, bolstered by a 3% increase in menu pricing. With sustained consumer demand, a strong operations team and a solid support infrastructure, the company believes Flower Child is well-positioned for accelerated expansion.

During the fiscal first quarter, management highlighted that enhanced execution played a key role in margin expansion, all while maintaining the brand’s commitment to quality and value in a competitive environment. On the marketing front, the company’s recent menu update — featuring over 20 new items — generated significant media attention, resulting in more than 700 placements and over 8 billion potential PR impressions, nearly double the exposure achieved in the same quarter last year.

The Cheesecake Rewards loyalty program continued to gain traction, with member acquisition exceeding expectations and satisfaction levels remaining high. The company is now shifting from broad offer testing to a personalized engagement strategy to boost response rates and member interaction. Shares of Cheesecake Factory have gained 7.7% in the past six months against the industry’s 5.2% decline.

Concerns for CAKE Stock

Cheesecake Factory is operating amid an uncertain macroeconomic environment. Moreover, fluctuations in commodity costs, labor, restaurant-level occupancy expenses, general and administrative expenses and pre-opening expenses are concerns.

The company anticipates the cost pressures to continue for some time. For the second 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. The company expects general and administrative expenses for the same time frame to be approximately $60 million. Our model predicts total costs and expenses in second-quarter 2025 to rise 4.6% year over year to $884.6 million.

CAKE’s Zacks Rank & Key Picks

Cheesecake Factory currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Retail-Wholesale sector are BJ's Restaurants, Inc. BJRI, Brinker International, Inc. EAT and CAVA Group, Inc. CAVA.

BJ's Restaurants presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
 
BJ's Restaurants has a trailing four-quarter earnings surprise of 30.9%, on average. The stock has inched up 18.3% in the year-to-date period. The Zacks Consensus Estimate for BJ's Restaurants’ 2025 sales and earnings per share (EPS) implies growth of 3.2% and 23.8%, respectively, from the year-ago levels.
 
Brinker presently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 24.5%, on average. The stock has gained 8.8% in the year-to-date period.
 
The Zacks Consensus Estimate for Brinker’s 2025 sales and EPS indicates an increase of 20.9% and 113.7%, respectively, from the year-ago levels.

CAVA presently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 26.9%, on average. The stock has declined 25.8% in the year-to-date period.
 
The Zacks Consensus Estimate for CAVA’s 2025 sales and EPS indicates growth of 24.3% and 38.1%, respectively, from the year-ago period’s levels.

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

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