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Cheesecake: A Quality Slice
09/23/2016 7:00 am EST
In 1978, David Overton opened a restaurant in Beverly Hills to showcase his mother’s cheesecakes; the restaurant was an immediate success, notes Ingrid Hendershot, money manager and editor of Hendershot Investments.
Over the last 38 years, The Cheesecake Factory (CAKE) has developed a strong brand as an upscale, casual dining restaurant appealing to a broad demographic range.
Today, it operates more than 200 restaurants with revenues topping $2 billion. David Overton remains the company’s Chairman and CEO and owns more than 7% of the business.
The Cheesecake Factory is known for excellent service and offering generous portions from an extensive menu of more than 200 items which includes about 50 varieties of its legendary and signature cheesecakes.
The Cheesecake Factory generates consistent cash flows. Cash flow from operations has approximated $200 million each year over the last five years.
Management is continuing to expand stores at a disciplined pace to provide for future growth.
At the same time, the company is returning substantially all free cash flow after capital expenditures to shareholders in the form of dividends and share repurchases.
In addition, the board of directors recently expanded the share repurchase authorization by 7.5 million shares to 56 million shares underscoring their confidence in the firm’s future prospects.
The Cheesecake Factory has generated positive comparable store sales growth for more than six years as it gains market share.
In fiscal 2016, the company plans to open as many as eight domestic restaurants while opening four to five licensed restaurants internationally.
This includes the first The Cheesecake Factory in China which opened in June at the Shanghai Disney Resort.
Long-term investors hungry for a high quality company with a strong brand, consistent cash flows, a rapidly growing dividend and solid growth should consider ordering a slice of The Cheesecake Factory. Buy.
By Ingrid Hendershot, Editor of Hendershot Investments
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