The Cheesecake Factory Inc. has put smiles on investors' faces by serving up impressive financial results quarter after quarter. The company's recipe for success has been as simple as its menu staples: signature desserts and heaping entrees of almost any cuisine imaginable.

Now the Calabasas Hills-based casual dining chain is heading into unfamiliar territory, looking to capitalize on Americans' swelling appetites for imported flavors by starting its own Asian restaurants.

"We are currently developing a new concept, but we have a lot of work to do," Michael Dixon, Cheesecake Factory's chief financial officer, said during a fourth-quarter conference call. "It is a broad-based Asian concept with very little Chinese influence."

Other than that, Cheesecake Factory has so far been pretty quiet about its plans for its Asian restaurant, the company's third concept. This much is known: The first restaurant is expected to open no later than fiscal year 2007 and be pricier than Cheesecake Factory, where the average check ran $17 last year.

Like its portions, Cheesecake is known for making things big, and Randall Hiatt, president of Costa Mesa-based restaurant consultancy Fessel International, said the Asian eateries could be among the largest such venues in the cities they are placed.

"Some restaurant chains take the approach that 'I am going into a market and build five or six restaurants that do $3 million,'" he said. "(Cheesecake Factory) usually takes the approach that they are going to do one restaurant, maybe two restaurants, and do the same kind of sales."

Rapid expansion of the Asian restaurant concept seems unlikely. Cheesecake Factory has a history of carefully locating its restaurants and then relying on its core brand to drive revenues. That's for a good reason: it has sales of nearly $1,000 per square foot, nearly twice the return posted by most competitors.

Cheesecake Factory has been slow to roll out Grand Lux, its European-infused second concept that has performed solidly. Seven years since its introduction in Las Vegas, there are only seven Grand Lux locations. However, the company has ramped up recently, with two restaurants added in the fourth quarter and three planned for this year.

Cheesecake Factory is attempting to manage expectations for its Asian foray. "It is something that we are trying out. We are not making a commitment to this concept being the next growth vehicle," said Jill Peters, a vice president at Cheesecake Factory. "Certainly, our primary growth vehicles remain the Cheesecake Factory followed by our new Grand Lux Cafes."

Nonetheless, the idea concerns some of its investors, who feel the company would be better off sticking with its proven formula. There are also worries that multi-concept restaurant companies can lose their focus and are unable to execute as well as companies with laser-beam attentiveness to one brand.

Great expectations
Peter Oakes, a senior analyst at Piper Jaffray & Co., advises investors not to be too concerned about the Asian concept being a distraction. "We would suggest viewing this simply as another test kitchen that has at least another five to seven years before it likely moves to stage two, if all goes well," he wrote in a research note. Oakes has an "outperform" rating on Cheesecake.

Investors expect a lot from Cheesecake Factory, which has historically turned in 20 percent-plus earnings increases quarter after quarter. To sustain that growth, the company must continually add restaurants. The company has set a long-term target of 250 Cheesecake Factory restaurants (up from 103 existing units) and 150 Grand Lux Cafes.

There are some who believe that Cheesecake Factory isn't beefing up its restaurant portfolio fast enough. Ashley Reed Woodruff, an analyst at Bear Stearns, recently cut her rating to "peer perform" from "outperform" despite a strong fourth quarter, in which revenue climbed 23 percent to $328 million.

"It is the 2006 outlook that concerns us," Woodruff wrote in a research note, citing delays in opening units. "We think the negative earnings impact of the slower square-footage growth may not yet be fully understood on the Street."

The Asian concept could help the company expand more effectively in key markets where Cheesecake Factory units already exist. When restaurants are added in existing markets, their honeymoon sales those just after a grand opening haven't been as great as experienced in new markets. Of the 16 Cheesecake Factory restaurants opened last year, nine were in existing markets.

The Asian concept would offer a different sort of outlet to draw customers who already frequent Cheesecake Factory eateries. It could also open up high-quality locations where landlords might have been hesitant to give space to a duplicate Cheesecake Factory or even to a Grand Lux, which is not drastically divergent from the core concept.

Cheesecake Factory will benefit from the lack of restaurant chain penetration in Asian dining. Certainly, Scottsdale, Ariz.-based P.F. Chang's China Bistro Inc. has made a dent in the arena, but the other major chains haven't embraced the cuisine. Orlando, Fla.-based Darden Restaurants Inc. is recognized mostly for Olive Garden and Red Lobster restaurants and Dallas-based Brinker International Inc. features Southwestern fare with its Chili's restaurants, and Italian with its Romano's Macaroni Grill and Maggiano's Little Italy. Asian restaurants in the country's urban markets are still dominated by independent owners, who appeal to customers by serving up authentic cuisine.

But if anyone can attract diners to a chain Asian concept, Hiatt said, it could be Cheesecake Factory.

"They have a very strong operations team, very strong standards," he said. "They are one of the leaders in casual dining and service. As long as they stay in that, they have a lot of credibility."

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