Cheesecake Factory Stays Hot As Analysts Worry Over Profits

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Cheesecake Factory Stays Hot As Analysts Worry Over Profits

WALL STREET WEST

Despite warnings from several analysts that Cheesecake Factory’s stock may be nearing a fall as costs for building and commodities mount, investors appear unfazed.

Last Tuesday, following a Sept. 6 Barron’s article that detailed slower earnings growth and challenges facing the Calabasas Hills-based company, Cheesecake’s stock rose 1.3 percent to close at $41.16 a share.

“It takes time for people to realize what’s going on and the risk that’s inherent,” said Eric Wold, managing director at investment bank Merriman Curhan Ford & Co. in San Francisco. Wold maintains a neutral rating on the stock. “It’s been the darling stock of Wall Street and I think people tend to love the company enough and are glossed over by the problems that go on behind the scenes.”

In a July 21 report, Wold expressed concern about the shares’ valuation prospects due to poor earnings quality, a decline of consensus estimates and increased risk of operating margin pressures throughout this year.

Howard Gordon, senior vice president of business development and marketing for Cheesecake Factory, declined to comment.

Of the analysts who have rated the stock within the last three months, eight maintain a buy rating, while two have put a hold on the stock and one has a sell rating.

“I believe the company can certainly grow to close to 200 Cheesecake Factories and along the way build a nice base of Grand Luxe Cafes,” said Sharon Zackfia, an analyst with William Blair & Co. in Chicago. Zackfia, who has an outperform rating on the stock, said she expects operating margins to improve as Cheesecake grows.

“The Cheesecake Factory continues to be the Holy Grail of restaurant concepts and an industry leader in sales with enviable unit-level returns and an excellent management team. Frankly, it’s hard to throw any stones at what they’ve done.”

Rebecca Flass

A Slice of the Pie

Once a popular post-game and family hangout for pizza and mojo potatoes, Shakey’s Pizza has struggled in recent years, as the once 500-unit chain pared back to 63 stores. Earlier this month, Alhambra-based Jacmar Cos. acquired the company from Singapore-based Inno-Pacific Holdings for $4.5 million.

Jacmar’s president, James A. Dal Pozzo, said in a press release that he intends to hire a chief executive for Shakey’s USA by year-end, modernize the restaurants and test some new food concepts, such as fresh entr & #233;e salads and rotisserie chicken.

The acquisition settled a three-year-old lawsuit filed by the franchisees against Shakey’s. Citing the lack of leadership and corporate investment, franchisees alleged breach of contract against Shakey’s.

The chain was founded in 1954 by Sherwood “Shakey” Johnson, and was the first franchised family pizza chain in the U.S. It made famous the concept of thin-crust pizza, mojo potatoes and a “fun zone” with arcade games. But the growth of the fast-food industry, changing consumer diets and the proliferation of other pizza chains remain challenges.

Kathryn Maese

Modest Recovery

After a rough debut as a public company, Torrance-based eCost.com Inc.’s stock had recovered somewhat last week.

The PC Mall Inc. subsidiary slashed its Aug. 27 IPO price nearly in half, to $5.80 a share. Underwriters had targeted a pricing on the 3.5 million shares in the $9 to $11 range.

By Sept. 9, eCost’s shares had recovered to $6.05 each on Nasdaq. The IPO brought in net proceeds of $15.8 million, for eCost, which sells discounted and refurbished computer equipment. Last year eCost saw a profit of $6.4 million on sales of $110 million. This year, however, the company posted a first-half loss of $15,000.

Kathryn Maese

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