Popular restaurant chains Wingstop Inc., Cheesecake Factory, and Shake Shack reported strong sales for the fourth quarter this week, shaking off fears of a weakening economy. The restaurants’ shares, however, traded mixed, with Wingstop and Shake Shack heading south while Shake Shack traded north.
President and Chief Executive Officer Michael Skipworth praised the company’s sales record and new store openings.
“2024 results demonstrated the strength and staying power of our strategies we are executing against, translating into another record year,” he said.
“We reached new highs with domestic [average unit volumes] of $2.1 million and opened 349 net new restaurants—a remarkable 15.8 percent growth rate, demonstrating the strength of our unit economics and confidence in our strategies by our Brand Partners.
In addition, Skipworth expressed optimism about 2025 and remains confident that the restaurant chain is on track to become a Top 10 Global Restaurant Brand.
David Overton, chairman and chief executive officer, saw the rise in same-store sales as a vote of confidence in the brand.
“While our fourth-quarter results were led by the strength of The Cheesecake Factory restaurants, we delivered impressive performance across our portfolio of concepts,” he said.
“Consumer demand for the distinct, high-quality dining experiences we provide our guests across our experiential concepts reinforces our confidence in the long-term growth potential of our portfolio.”
The rise in the sales of the three restaurant chains in the fourth quarter confirms that U.S. consumers continued to spend on discretionary areas like dining out. It’s shaking off signs of weakening spending following a lackluster consumer confidence report from the University of Michigan a couple of weeks ago, a weak retail sales report last Friday, and soft sales guidance from Walmart on Thursday morning.
Wall Street had a mixed reaction to the three financial reports. Shares of Wingstop dropped sharply as traders and investors expected more from the high-flying chain. Shares of Cheesecake Factory dropped slightly, while shares of Shake Shack rallied.
Despite the rise in sales, the three restaurant chains face challenges that may make it difficult to deliver what Wall Street ultimately cares about: solid earnings and plenty of free cash flow.
One of these challenges is the re-acceleration of inflation in recent months, which has squeezed the budgets of low-income consumers and is beginning to show up in discount retailers like Walmart.
A third challenge is the rising cost of food ingredients, which raises the cost of sales and squeezes profit margins. For instance, Wingstop’s cost of sales increased to 77.6 percent from 75.1 percent a year earlier.
Equity analyst John Zolidis isn’t that optimistic about the restaurant industry in 2025. He has no call on Shake Shack and Wingstop and a sell rating on Shake Shack shares.
“CAKE (Cheesecake Factory) has produced a quite remarkable recovery in profitability over the past two years with Earnings Before Interest Taxation, Depreciation, and Amortization (EBITDA) margins expanding to 8.3 percent from 5.3 percent,” he told The Epoch Times via email.
“However, nearly all of this improvement has been due to outsized menu pricing, which has more than offset fewer transactions and dilution from growth concepts. Guidance suggests this dynamic may end in 2025 with further risk of accelerating customer losses as CAKE pushes menu prices above inflationary levels.”
