(CAKE) The Cheesecake Factory Makes its Overseas Debut

The Cheesecake Factory Inc. (CAKE) opened a Cheesecake Factory restaurant at The Dubai Mall on August 16. The new 13,851 square feet Dubai restaurant can accommodate 300 guests. This new unit, opened in association with the Kuwait-based Alshaya group, marks Cheesecake Factory’s first overseas opening.

Cheesecake Factory’s restaurants are primarily located in or near malls and shopping centers. The newest unit, opened opposite the Dubai Aquarium, enjoys one of the prime locations in Dubai. We believe the location is strategically perfect to attract high-end customers.

In January 2011, the company entered into an agreement with Alshaya group of companies to build and operate 22 Cheesecake Factory restaurants over the next five years in five countries of the Middle East––United Arab Emirates, Kuwait, Bahrain, Qatar and the Kingdom of Saudi Arabia. The agreement also includes expansion plans in the other markets of the Middle East and North Africa, Central and Eastern Europe, Russia and Turkey.

Management believes that this agreement with Alshaya will provide another stream for revenue growth along with its existing domestic operations. The company aims to open about three locations in the Middle East in fiscal 2012 but does not expect these openings to have a material impact on the financial results of fiscal 2012.

Founded in 1890, the Alshaya group of companies is a leading international franchise operator. The company enjoys local market knowledge and has a proven track record of franchising over 55 of the world’s big retail brands. Other food service brands in Alshaya’s pipeline include Texas Roadhouse Inc. (TXRH), Potbelly, and Shake Shack.

Alshaya stores can currently be found in 15 markets across the Middle East, North Africa, Turkey, Cyprus, Russia, Poland, Slovakia and the Czech Republic. According to the Alshaya group, Cheesecake Factory is one of the most sought after U.S. based casual dining restaurants among consumers in the Middle East.

The deal affirms Cheesecake Factory management’s intent to make the Middle East one of the prime markets for international expansion, particularly as it sees a fondness for American dining brands in that region. The company seeks to fully capitalize on this.

Another U.S. restaurateur Darden Restaurants Inc. (DRI) signed a deal with the Americana Group of Kuwait in October 2010 to set up 60 restaurants in Bahrain, Egypt, Kuwait, Lebanon, Qatar, Saudi Arabia and United Arab Emirates. Other western restaurateurs with prominent presence in the Middle East are Yum! Brands Inc. (YUM) and Krispy Kreme Doughnuts Inc. (KKD).

Cheesecake Factory currently carries a Zacks #2 Rank that translates into a short-term Buy rating. We reiterate our long-term Neutral recommendation on the stock.

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