Cheesecake Factory's Strategy Could Backfire (Rating Downgrade)

Cheesecake Factory's Strategy Could Backfire (Rating Downgrade)

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.

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