Goldman Sachs analyst upgrades Cheesecake Factory

Goldman Sachs raises rating on Cheesecake Factory to 'Buy,' says sales, traffic are improving

• On 3:29 pm EDT, Tuesday October 27, 2009

NEW YORK (AP) -- An analyst upgraded shares of The Cheesecake Factory Inc. on Tuesday and said that the restaurant operator will benefit from new menu items and post stronger sales as mall customer traffic improves.

Goldman Sachs analyst Steven T. Kron said the company's sales are tracking close to mall-based retailers such as Nordstrom, Saks and Neiman Marcus. Many of Cheesecake Factory's restaurants are located in malls and shopping centers.

Earlier this month, the International Council of Shopping Centers and Goldman Sachs said September sales at top stores rose 0.1 percent, which was better than the decline predicted by many analysts. It was the first gain in more than a year.

"Trends in retail have seemingly picked up of late, and while the sustainability is difficult to assess, if holiday proves to be stronger year over year, Cheesecake Factory could see a benefit and continue to outpace the restaurant industry," Kron wrote in a client note.

Last week, Cheesecake Factory said third-quarter profit rose 38 percent because of lower costs and more menu offerings, including cheesecake. Sales still declined 1 percent.

But Kron, who upgraded the stock to "Buy" from "Neutral," said that stronger sales will boost earnings next year.

Also helping the company are cost-cutting and higher margin items on its menus, Kron said. The company rolled out small plates and snacks earlier this year and has expanded with eight new menu items.

"These higher margined products, coupled with a tick-up in dessert sales, should benefit 2010 margins year over year," Kron wrote in a client note.

Shares rose 2 cents to $18.96 in afternoon trading.

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