(CAKE) The Cheesecake Factory Expands in California

The Cheesecake Factory Inc. (CAKE), which currently operates 168 restaurants, recently announced the opening of a new unit in San Mateo, California. This is the fifth of the company’s targeted 7 new openings for fiscal 2011. The other restaurants have already opened in Texas, New Jersey, Florida and Connecticut.

The newly opened restaurant spans approximately 8,500 square feet and accommodates around 251 guests. It is located in the Hillsdale Shopping Center, which hosts over 130 stores and is anchored by three department stores (Nordstrom Inc. (JWN), Macy’s Inc (M) and Sears). We expect the restaurant to benefit immensely from its strategic positioning. We also expect a great variety of menu offering at the new unit to attract guests.

Apart from Cheesecake, other major restaurant operators including California Pizza Kitchen, Café Nordstrom, TGI Fridays and Boudin’s Sourdough Bakery and Café have units in the Hillsdale Shopping Center.

The Californian market, which was badly hit during the housing downturn, has begun to turn around. The gradual improvement in this market, which is one of the key markets for the company, should drive growth going forward.

Going forward, Cheesecake possesses a number of sites in its pipeline for 2012. The new Cheesecake Factory units will span from 8,500 to 10,000 square feet. For 2012, management expects to increase the number of new openings. Management has now become comfortable with using different sized formats depending on the needs of the market. Its smaller-footprint units are generating well above-the-targeted returns, which makes the company focus on A-plus sites to spur the return on investment.

The company is also concentrating on its other two brands, Grand Lux Cafe and RockSugar Pan Asian Kitchen, for future growth. Presently, the company has 13 restaurants under the Grand Lux Cafe mark and one under the RockSugar Pan.

Despite more business from the new units, Cheesecake will face stiff competition in California from Red Robin Gourmet Burgers Inc (RRGB) and BJ’s Restaurants Inc (BJRI), which have strong presence in that area.

Cheesecake has a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation also remains Neutral.

BJ’S RESTAURANT (BJRI): Free Stock Analysis Report

CHEESECAKE FACT (CAKE): Free Stock Analysis Report

NORDSTROM INC (JWN): Free Stock Analysis Report

MACYS INC (M): Free Stock Analysis Report

RED ROBIN GOURM (RRGB): Free Stock Analysis Report

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