Cheesecake Factory's Strategy Could Backfire (Rating Downgrade)

The Cheesecake Factory Incorporated stock analysis: margins improved, but traffic falls and expansion strains free cash flow. Click for this CAKE earnings preview.

The Cheesecake Factory Incorporated (CAKE) has executed a good earnings turnaround in the past couple of years, reflecting price increases at the main restaurant concept, as well as improved labor efficiency. I believe that the Summary - The Cheesecake Factory Incorporated has reported a solid margin turnaround in the past couple of years. - CAKE's margin turnaround strategy, based on price increases and labor efficiencies, seems futile as traffic is on a decline.

- Ambitious restaurant expansion weakens CAKE's free cash flow, but looks to generate quite poor capital returns. - I estimate CAKE stock to have -35% downside to $53.9. Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours.

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