Cheesecake Factory's (CAKE, Financial) stock has received a lot of attention after activist investor JCP Investment Management invested in the company. In the past twelve months, its share price has been on a tear, surging by more than 40% and currently valued at 15 times its EBITDA. With the recent investment, JCP, holding a roughly 2% stake, urges the company to spin off three of its smaller brands, North Italia, Flower Child, and Culinary Dropout, into a separate public entity. Those three businesses will chart their own path as a standalone growth-focused company. Cheesecake Factory has acknowledged the investment, stating it values shareholder input.
The investor sees a spinoff as a shot at reigniting growth by letting each business zero in on its market. JCP is even ready to infuse capital into the new entity, signaling confidence in its potential to capture more agile growth opportunities. It's a smart play: streamline operations, let focused management teams work toward financial targets, and free up resources. Alongside this push, JCP has recommended a strategic review for other smaller brands that might be better off in someone else's hands.
The pressure's on, with 2024 shaping up as one of the toughest years for the restaurant industry outside the chaos of 2020. Inflation, rising interest rates, and a surge in bankruptcies are hitting hard, particularly for smaller operators. For Cheesecake Factory, breaking things up might be the shakeup it needs to navigate this challenging landscape and deliver real value to shareholders.
