The Cheesecake Factory: Have Your Cake and Eat It Too

The Cheesecake Factory: (CAKE) June 12, 2008 close: $17.36

52-week range: $17.24 [Jan. 22, 2008] - $28.24 [Aug. 9, 2007]

The CheesecakeFactory operates 154 casual dining restaurants including 13 larger andmore upscale Grand Lux Café units. Third party bakery sales includingCostco (COST) account for about 5% of sales.

CAKEis a former high-flying growth stock that was loved by all while ittraded at extremely high valuations. It earned that status by takingEPS from [split adjusted] $0.10 in 1996 to $1.09 in 2005 with higherearnings in each year along the way. During most of that run,Cheesecake Factory commanded P/Es of 28x – 36x. Even now its 10-yearmedian multiple is 32x.

Theeconomic slowdown along with higher food and labor costs, have stalledearnings since 2005. EPS dipped to $1.02 in 2006 before nudging back upto $1.04 last year. Despite a year-over-year dip in Q1