The Cheesecake Factory (CAKE)

Restaurant company Cheesecake Factory (NASDAQ:CAKE) fell short of the market’s revenue expectations in Q3 CY2025 as sales rose 4.8% year on year to $907.2 million. Its non-GAAP profit of $0.68 per share was 13.1% above analysts’ consensus estimates.

Company Overview

Celebrated for its delicious (and free) brown bread, gigantic portions, and delectable desserts, Cheesecake Factory (NASDAQ:CAKE) is an iconic American restaurant chain that also owns and operates a portfolio of separate restaurant brands.

Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.

Multi-brand full-service restaurant competitors include Bloomin’ Brands (NASDAQ:BLMN), Brinker International (NYSE:EAT), Darden (NYSE:DRI), Dine Brands (NYSE:DIN), and Texas Roadhouse (NASDAQ:TXRH).

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $3.71 billion in revenue over the past 12 months, The Cheesecake Factory is one of the larger restaurant chains in the industry and benefits from a well-known brand that influences consumer purchasing decisions.

As you can see below, The Cheesecake Factory’s 7.7% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was decent as it opened new restaurants and increased sales at existing, established dining locations.

This quarter, The Cheesecake Factory’s revenue grew by 4.8% year on year to $907.2 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.9% over the next 12 months, a slight deceleration versus the last six years. This projection doesn't excite us and implies its menu offerings will face some demand challenges.

Number of Restaurants

A restaurant chain’s total number of dining locations influences how much it can sell and how quickly revenue can grow.

The Cheesecake Factory sported 364 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 4.5% annual growth, among the fastest in the restaurant sector.

When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.

Same-Store Sales

The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at restaurants open for at least a year.

The Cheesecake Factory’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 1.2% per year. This performance suggests it should consider improving its foot traffic and efficiency before expanding its restaurant base.

In the latest quarter, The Cheesecake Factory’s year on year same-store sales were flat. This was a meaningful deceleration from its historical levels. We’ll be watching closely to see if The Cheesecake Factory can reaccelerate growth.

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate pricing power and differentiation, whether it be the dining experience or quality and taste of food.

The Cheesecake Factory has great unit economics for a restaurant company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 39.6% gross margin over the last two years. That means The Cheesecake Factory only paid its suppliers $60.38 for every $100 in revenue.

This quarter, The Cheesecake Factory’s gross profit margin was 42.6%, marking a 1.1 percentage point increase from 41.5% in the same quarter last year. The Cheesecake Factory’s full-year margin has also been trending up over the past 12 months, increasing by 1.3 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

The Cheesecake Factory was profitable over the last two years but held back by its large cost base. Its average operating margin of 4.7% was weak for a restaurant business. This result is surprising given its high gross margin as a starting point.

On the plus side, The Cheesecake Factory’s operating margin rose by 1.5 percentage points over the last year, as its sales growth gave it operating leverage.

This quarter, The Cheesecake Factory generated an operating margin profit margin of 4.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

The Cheesecake Factory’s unimpressive 6.4% annual EPS growth over the last six years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q3, The Cheesecake Factory reported adjusted EPS of $0.68, up from $0.58 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects The Cheesecake Factory’s full-year EPS of $3.81 to grow 6.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

The Cheesecake Factory has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.8%, subpar for a restaurant business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although The Cheesecake Factory hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 13%, impressive for a restaurant business.

The Cheesecake Factory reported $190 million of cash and $629.2 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $324.5 million of EBITDA over the last 12 months, we view The Cheesecake Factory’s 1.4× net-debt-to-EBITDA ratio as safe. We also see its $11.58 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see The Cheesecake Factory beat analysts’ EPS expectations this quarter. On the other hand, its same-store sales and revenue fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 1.1% to $53.83 immediately following the results.

Updated: December 4, 2025 at 9:37 PM EST

Are you wondering whether to buy The Cheesecake Factory or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

The Cheesecake Factory’s business quality ultimately falls short of our standards. Although its revenue growth was decent over the last six years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. And while the company’s new restaurant openings have increased its brand equity, the downside is its operating margins are low compared to other restaurants.

The Cheesecake Factory’s P/E ratio based on the next 12 months is 12.3x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $59.22 on the company (compared to the current share price of $47.81).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.