The Cheesecake Factory Inc. (CAKE), which currently operates 164 restaurants, remains on track to open as many as 7 new restaurants in fiscal 2011, of which three restaurants have already been opened. The first restaurant has been opened in Houston, Texas.
This week, the company opened its latest Cheesecake Factory restaurant at The Shops at Pembroke Gardens in Pembroke Pines, Florida. The 8,400-square feet restaurant accommodates up to 225 guests.
The second restaurant has come up at The Mall at Short Hills, New Jersey in mid July. The restaurant spans approximately 10,000 square feet and seats around 277 guests.
Geographically, Cheesecake witnessed strength across a number of key markets, including California, Florida, the Midwest, the Southeast and Texas in the recently concluded second quarter with each delivering at or above average comparable sales. The company enjoys a significant presence in these regions and remains well received among consumers. Hence, we believe, the newest opening in Texas is strategically perfect.
Going forward, Cheesecake’s pipeline possesses a number of sites for 2012.  The new Cheesecake Factory units will range from 8,500 to 10,000 square feet. In addition to the 8,000 square feet design, the company will also open a 7,200 square feet restaurant this year in Danbury, Connecticut.
For 2012, management expects to increase the number of new openings. Management has now become comfortable with using different sized formats depending on the needs of the market. Its smaller-footprint units are generating well above the targeted returns, which makes the company focus on A-plus sites to spur the return on investment.
On a flip side, the company incurred increased pre-opening expense of $1.1 million in the second quarter of 2011 versus $0.6 million in the same period last year on the back of higher number of expected openings in the third quarter of this year relative to last. Hence, the company’s plan of domestic expansion comes with a threat of increased pre-opening costs. However, the concern is for the near term.
Cheesecake currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.  We are also maintaining our long-term Neutral recommendation on the stock. The company’s close competitors include BJ's Restaurants Inc. (BJRI) and Krispy Kreme Doughnuts Inc. (KKD).


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