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Cheesecake Factory (CAKE)Target Price of $56.30 (+16.6%)Director: Dylan JamesSenior Analyst: Austin PartridgeJunior Analyst: Collin HartmanJunior Analyst: Jonathon McClanahanGeneral Member: Robbie HuttonGeneral Member: Udayram KantipudiGeneral Member: Mehul Mittal

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Outline

Company Overview

Market View

Variant ViewValuation

Risks

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Company Overview

The Cheesecake Factory is a restaurant company and distributor of cheesecakes based in the United States

Started in 1972 Operating segments:

177 under Cheesecake factory, 11 under Grand Lux Café, 1 under RockSugar Pan Asian Kitchen

2 bakery production facilties Customer Base:

Affluent areas

Business Model

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Company Overview

Competitive AdvantagesFresh, high-quality ingredientsAnticipating consumer preferences Large menu selectionAward-winningVertical integration Excellent Staffing

Business Model

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Company Overview

Product Type: Alcoholic Beverages: 13% of sales Cheesecake Factory

and 17% of sales Grand Lux Café Desserts 15-16% sales

Locations: 4 international restaurants:

Mexico and Middle East International Agreement:

Middle East, Latin America, and Asia Goal of 300

Trends: Steady growth rate

Business Model

Foodstuff Sales

Alcoholic Beverages Desserts Other Total

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Market ViewConsensus Estimates

CAKE

DRI

EAT

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Market View

10.1% Decrease in Operating Profits External Cost Pressures High Medical Insurance Costs Increase in Commodity Prices

Limited Geographic Exposure Higher Labor Costs Fewer Store Openings

Market Drivers

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Market ViewMarket Drivers

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Market View Revenue

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Variant ViewSome Truth to Market View

“Looking forward to 2016, we currently expect to open as many as eight company-owned restaurants, including one Grand Lux Café.“

“We feel quite good about delivering significant earnings per share growth in spite of the wage inflation that is pressuring the restaurant and retail industries.”

David Overton, CEO

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Variant ViewMarket Too Focused on Short TermDemographic Characteristics Socioeconomic Characteristics

Females Ages 19-49 Middle to Upper Class

Seniors and Children Well Educated

CAKE Will Pass Off Higher Costs to the Customers, increasing prices 2.5% offsetting increased labor

costs of 4.5%.

A+ location selection in affluent areas allow customers to absorb costs minimally

affecting sales.

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Variant ViewDecline in CapEx Offset by Foreign Sales

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Variant View

The market fears that the decline in 2016 store expansions indicates permanently slowed growth (8 projected 2016 openings vs 11 in 2015) Explained by timing choices by management Smaller restaurant design rollout will facilitate expansion

into small markets post 2015

The market underestimates the growth potential for international licensing Foreign restaurants yield higher average unit volumes Success in Middle East (Expanded from 1 to 5 stores in

one year)

Decline in CapEx Misleading

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Variant ViewCAKE Partnership for Expansion into Hong Kong

International Licensing Partners

Chili’s, Starbucks, and P.F. Chang’s

2,700 restaurants across Mexico

IHOP, P.F. Chang’s, Shake Shack

Expanded CAKE from Dubai to Lebanon, Saudi Arabia,

and Kuwait

Newest CAKE Location

Disneytown, Hong Kong

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Variant ViewCAKE Partnership for Expansion into Hong Kong

Maxim’s Caterers Limited

Handled expansion of Starbucks into Hong Kong in 2001

Profitable within two months

Expanded to 30 stores within two years

Exceeded minimum build requirement in partnership

Minimum build partnership of 14 restaurants

Proven success in Pacific U.S.

Partnership can expand to Japan, Taiwan, South Korea, Singapore, and Thailand

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ValuationComparables

The Cheesecake Factory (NasdaqGS:CAKE)Public ComparablesCompany Ticker Market Cap Price Shares Out Cash TEVDarden Restaurants NYSE:DRI 8121.2 63.33 128.2 858 8462.5Texas Roadhouse NasdaqGS:TXRH 2636 37.58 70.1 72 2641.7Bloomin' Brands NasdaqGS:BLMN 2105.1 17.57 119.8 136 3408.7Brinker International NYSE:EAT 2939 49.35 59.6 71 4027.8Cracker Barrel Old Country Store NasdaqGS:CBRL 3186.4 133.11 23.9 128 3470.8DineEquity NYSE:DIN 1607.2 86.25 18.6 105 2947.5The Cheesecake Factory NasdaqGS:CAKE 2322.5 49.1 47.3 30 2378.2

Max 8121.2 133.11 128.2 858 8462.575th Percentile 3062.7 74.79 94.95 132 3749.3Median 2636 49.35 59.6 105 3408.725th Percentile 2213.8 43.34 35.6 71.5 2794.6Min 1607.2 17.57 18.6 30 2378.2

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ValuationComparables

CAKE DRI TXRH BLMN EAT CBRL0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

EV/Sales

CAKE DRI TXRH BLMN EAT CBRL DIN0

2

4

6

8

10

12

14

EV/EBITDA

CAKE DRI TXRH BLMN EAT CBRL DIN0

5

10

15

20

25

30

35

P/E

The Cheesecake Factory (NasdaqGS:CAKE)Public ComparablesCompany Ticker EV/Sales EV/EBITDA P/EDarden Restaurants NYSE:DRI 1.2x 9.7x 22.9xTexas Roadhouse NasdaqGS:TXRH 1.5x 12.8x 28.7xBloomin' Brands NasdaqGS:BLMN 0.8x 7.5x 16.9xBrinker International NYSE:EAT 1.3x 8.6x 15.0xCracker Barrel Old Country Store NasdaqGS:CBRL 1.2x 10.1x 18.7xDineEquity NYSE:DIN 4.4x 11.6x 28.8xThe Cheesecake Factory NasdaqGS:CAKE 1.1x 9.4x 21.9x

Max 4.4x 12.8x 28.8x75th Percentile 1.4x 10.9x 25.8xMedian 1.2x 9.7x 21.9x25th Percentile 1.2x 9.0x 17.8xMin 0.8x 7.5x 15.0x

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DCF

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DCF

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Valuation

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Valuation

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Risks & MitigantsHigh Competition International Growth

● CAKE’s expansion into international markets is risky

● CAKE employs computer modelling to identify suitable locations

● Success in foreign markets contingent upon licensing for CAKE

● They have had early successes in the Middle East.