Mu Ran
Nan Liang
Ya Zuo
Yang Han
Yuwei Hong
December 1, 2011
Agenda
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Introduction
Macroeconomic and industry overview
Company and business overview
Relevant stock market prospects
Financial analysis
Multiple valuation
Financial projections
DCF valuation
Recommendation
Introduction
• The Cheesecake Factory
– Upscale, casual, full-service dining restaurants
• Industry
– Chain restaurants
• Selection reasons
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–
–
–
Interests
Operations and management
Financial health
Few analyst coverage
Macroeconomic Overview
• Real GDP
Source: Capital IQ MacroEconomic 2011 Nov 30
Macroeconomic Overview
• Unemployment Rate
Source: Capital IQ MacroEconomic 2011 Nov 30
Macroeconomic Overview
• Consumer Confidence Index
Source: Capital IQ MacroEconomic 2011 Nov 30
Macroeconomic Overview
• Consumer spending
Data Source: ISIB Consumer Spending Report 2011
Industry Overview
• Chain Restaurant
– Providing food services to patrons who order and are served while
seated (i.e. waiter or waitress service) and pay after eating
– Products and services segmentations
– Major players
Source: ISIB Chain Restaurants in the US Industry Report 2011
Major Markets
• Income demographics
• Age demographics
Data Source: ISIB Chain Restaurants in the US Industry Report 2011
Key Success Factors
Adoption of a
commercial focus
Access to multiskilled and flexible
workforce
Ability to quickly
adopt new
technology
• Understand and
meet what
customers desire
• Maintain a high
level of hospitality
Fast adjustments
made to changing
regulations
Ability to control
major cost areas
Proximity to key markets
(good location and
understanding what
customers’ need)
Industry Performance
Weakened
consumer
spending
Rapid rise in
unemployment
Increasing
awareness of the
health risk
Declining
industry’s
revenue
growth rate in
past few years
• Industry’s annual revenue
Data Source: ISIB Chain Restaurants in the US Industry Report 2011
Key External Drivers
Consumer sentiment
index
Competition from
substitutes
• Wiliness to spend
money on eating at
restaurant
• Recession leads to
declining
consumption
• 2006-2011
compound growth
rate: 0.82%
• Forecasted Value
for 2016: $10.72
trillion
• Forecasted 20112016 compound
growth rate: 2.60%
• Significant effect
on household
expenditure on
restaurant dining
• Estimated value in
2011: 69.1%
• 2006-2011
compound growth
rate: -4.57%
• Forecasted value
for 2016: 81.2
• Forecasted 20112016 compound
growth rate: 3.28%
• Strong competition
within the industry
itself
• Strong competition
from other food
service providers:
accommodation
establishments and
some quick service
restaurants
• Competition tends
to increase during
a recession
• Lower-price value
products from
restaurants
increases
• Increasing aware of
issues related to
weight and obesity,
fatty food intake
and food safety
issues
• As the index rises,
demand for some
restaurants with
less healthy
options will
decrease
• Estimated Value in
2011: 73.0%
• Full-service
restaurants tend to
draw higher
income households
• Growth in the
number of
households earning
over $100,000
benefits the
industry
• Estimated value in
2011: 21.3%
• 2006-2011 growth
rate: 0.3%
• Forecasted 20112016 growth rate :
1.6%
Expected to increase
slowly  potential
opportunity for the
industry
Expected to increase
slowly  potential
opportunity for the
industry
Expected to increase
 threatens
operators in the
industry
Expected to increase
 potential threat to
the industry
Expected to increase
slowly  potential
opportunity for the
industry
Consumer spending
Healthy eating index
Households earning
over $100,000
Data Source: ISIB Chain Restaurants in the US Industry Report 2011, ISIB Consumer sentiment index report,
ISIB consumer spending report, ISIB households over $100,000 report, ISIB healthy eating index report
Industry Structure
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Barriers to Entry: Low
Competition Level: High
Concentration Level: Low
Life Cycle Stage: Mature
Revenue Volatility: Low
Capital Intensity: Medium
Industry Assistance: Low
Regulation Level: Medium
Technology Change: Medium
Industry Globalization: Low
Industry Trend
• Restaurants will offer new and healthy foods to survive
in a competitive market
• The domestic market is increasingly becoming saturated.
Therefore, some major operators are continuing to invest
internationally through franchises
• Restaurants will continue to invest in technology,
including electronic customer ordering, labor scheduling
and electronic product ordering systems
US Bread Production Industry
• Manufactures bread and bakery products, such as cakes,
muffins, pastries, pies and other similar baked goods.
Data Source: ISIB Bread Production in the US Industry Report 2011
Company Overview
Evolution
• Oscar & Evelyn Overton
1972 • Small bakery in Los Angeles
• Chairman & CEO: David Overton
1978 • First Cheesecake Factory restaurant in California
• Consolidate the restaurant and bakery businesses of its
predecessors
1992
2011
• Announced initial expansion plans outside of United State
Data Source: Annual Report Fiscal 2011
Company Overview
Brief Description
General
The sale in 2010 is
$1,659,404
$10 million sales per restaurant
7,000 to 15,000 square feet
Highest sales productivity
Existing Locations
• By February 23, 2011, operated
164 restaurants
• Locate in 35 states
Sales%
Lunch & Dinner
Alcoholic
Dessert
Company Overview
Brands
Cheesecake Factory
• Upscale casual full service restaurant
• Menu features over 200 items, including pizza, seafood, steaks,
chicken, burgers, pastas, sandwiches, omelets and desserts.
• Current have 150 restaurants
Grand Lux Cafe
• Upscale casual dining concept that offers unique American and
international menu
• Offer approximately 200 items.
• Currently have 13 restaurants
RockSugar Pan Asian Kitchen
• Southeast Asian menu in an upscale casual dining setting
• Showcase the cuisines of Thailand, Vietnam, Malaysia, Singapore,
Indonesia and India with approximately 80 dishes
• Currently have one restaurant in operation in Los Angeles
Data Source: Annual Report Fiscal 2011
Company Overview
Competitive Advantage
Restaurant
Locations
AwardWinning Bar
& Bakery
Programs
Affordability
Competitive
Average
check:
$19.00
Advantage
Distinctive
Restaurant
Design and
Decor
Frequently
Updated
Menu
Data Source: Annual Report Fiscal 2011
Company Overview
Future Expansion
Data Source: Annual Report Fiscal 2011
Company Overview
Future Expansion
• January 2011
• 22 restaurants
• Mainly in Middle East
• Find opportunity in
North Africa, Central
and Eastern Europe,
Russia and Turkey
Kuwait-based
company
Licensing
agreement
• Well-established
restaurant and retail
operator based in
Kuwait
• Initial development
fee
• Site and design fees
• Ongoing royalties
Data Source: Annual Report Fiscal 2011
Company Overview
Risk Factors Analysis
Consistency of
product quality
Change Recipes due to
cultural difference
Adequate and reliable supplies of
ingredients and products
Uncertainties in economic, regulatory, legal, and social
conditions
Data Source: Annual Report Fiscal 2011
Stock Overview
History Price
40.00%
20.00%
0.00%
-20.00%
-40.00%
-60.00%
-80.00%
-100.00%
The Cheesecake Factory Incorporated (NasdaqGS:CAKE) - Share Pricing
Index: EAT, BWLD, DRI, DIN, 4 more (Market Cap) - Index Value
S&P MidCap 400 Index (^MID) - Index Value
S&P 400 Restaurants (Sub Ind) Index - Index Value
Data Source: Capital IQ
Stock Overview
8 competitors
200.00%
150.00%
100.00%
50.00%
0.00%
-50.00%
-100.00%
-150.00%
Brinker International Inc. (NYSE:EAT) - Share Pricing
Buffalo Wild Wings Inc. (NasdaqGS:BWLD) - Share Pricing
Darden Restaurants, Inc. (NYSE:DRI) - Share Pricing
DineEquity, Inc. (NYSE:DIN) - Share Pricing
P.F. Chang's China Bistro, Inc. (NasdaqGS:PFCB) - Share Pricing
Panera Bread Co. (NasdaqGS:PNRA) - Share Pricing
Ruby Tuesday, Inc. (NYSE:RT) - Share Pricing
Texas Roadhouse Inc. (NasdaqGS:TXRH) - Share Pricing
The Cheesecake Factory Incorporated (NasdaqGS:CAKE) - Share Pricing
Data Source: Capital IQ
Stock Overview
Relevant Policy
• No dividends
– Past
– future
• Stock Repurchase
– 2008: 2.1 million
– 2010: 9.6 million
– 2011-2012
• Stock Options
– Employees
Data Source: Annual Report fiscal 2011
Financial Analysis
Revenues
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
Bakery revenue
$800,000
$600,000
Restaurants
Revenue
$400,000
$200,000
$2006
2007
2008
2009
2010
Data Source: Annual Report fiscal 2011
Financial Analysis
Ratios
2006
2007
2008
2009
2010
Profitability
Return on Assets %
Return on Equity %
6.8%
11.4%
6.3%
13.1%
4.9%
11.6%
5.9%
8.3%
7.7%
13.8%
Margin Analysis
Gross Margin %
SG&A Margin %
EBIT Margin %
41.2%
5.5%
8.1%
42.3%
5.6%
7.3%
40.9%
5.2%
5.6%
42.4%
5.9%
6.4%
42.8%
5.8%
7.7%
Asset Turnover
Total Asset Turnover
Fixed Asset Turnover
Accounts Receivable Turnover
Inventory Turnover
1.3x
2.0x
133.2x
38.8x
1.4x
1.9x
131.5x
38.9x
1.4x
1.9x
134.5x
40.3x
1.5x
1.9x
134.1x
40.7x
1.6x
2.1x
120.5x
42.0x
Long Term Solvency
Total Debt/Equity
Total Debt/Capital
EBIT / Interest Exp.
EBITDA / Interest Exp.
5.5%
5.2%
56.9x
85.1x
40.0%
28.6%
10.2x
16.1x
76.3%
43.3%
6.1x
11.1x
30.2%
23.2%
4.4x
7.6x
8.8%
8.1%
7.6x
11.9x
Data Source: Annual Report fiscal 2011
DuPont Analysis
300.00%
tax burden
250.00%
interest burden
200.00%
operating profit margin
150.00%
asset turnover
100.00%
leverage
ROE
50.00%
0.00%
2006
2007
2006
tax burden
71.85%
interest burden
105.89%
operating profit margin 8.12%
asset turnover
126.51%
leverage
146.12%
ROE
11.42%
2008
2009
2007
70.00%
95.36%
7.33%
131.93%
203.54%
13.14%
2010
2008
71.38%
84.04%
5.43%
140.59%
252.48%
11.55%
2009
73.48%
69.60%
4.60%
153.05%
202.81%
8.30%
2010
73.56%
86.65%
7.73%
161.36%
173.62%
13.80%
Data Source: Annual Report fiscal 2011
Comparable
• Darden Restaurants, Inc. (NYSE:DRI)
• Market share: 14.3%
• Industry Brand Names: Red Lobster,
Olive Garden, LongHorn Steakhouse,
The Capital Grille, Bahama Breeze and
Seasons 52
• 1,800 restaurants
• Brinker International Inc. (NYSE:EAT)
• Market share: 4.4%
• Industry Brand Names: Chili’s Grill &
Bar, On the Border Mexican Grill &
Cantina and Maggiano’s Little Italy
• 1,550 restaurants
Source: ISIB Chain Restaurants in the US Industry Report 2011
Comparable
• DineEquity, Inc. (NYSE:DIN)
• Market share: 1.9%
• Industry Brand Names:
Applebee’s Bar & Grill and IHOP
• 2,000 Applebee’s restaurants
• 1,500 IHOP restaurants
• P.F. Chang's China Bistro, Inc.
(NasdaqGS:PFCB)
• Industry Brand Names: P.F.
Chang's China Bistro and Pei Wei
Asian Diner.
• 201 full service Bistro restaurants
• 168 quick casual Pei Wei
restaurants
Source: ISIB Chain Restaurants in the US Industry Report 2011
Comparable
Buffalo Wild
Wings Inc.
(Nasdaq: BWLD)
800 restaurants
Panera Bread Co.
(Nasdaq: PNRA)
1,467 bakery-cafes
Ruby Tuesday Inc.
(NYSE: RT)
746 restaurants
Texas Roadhouse Inc.
(Nasdaq: TXRH)
350 restaurants
Data Source: Capital IQ
Public Comps Analysis
Data Source: Capital IQ
Public Comps Analysis
Data Source: Capital IQ
Recommendation
Multiple
Method
(50%)
$27.32
Final Price
$20.38
Current Price
DCF
Method
(50%)
$28.36
$13.43
WACC=12.45%
Recommendation:
Watch List