A week before releasing its earnings report, an activist investor has taken a stake in Cheesecake Factory CAKE and is reportedly urging the company to spin off three smaller brands into a separate public entity. Following the report, the company shot up during the pre-market.
What Happened: According to Benzinga Pro, Cheesecake Factory traded 4.64% higher at $44.42 during the pre-market on Tuesday after closing at $42.45 on Monday.
Houston-based JCP Investment Management, known for its focus on the restaurant sector, has acquired about 2% of Cheesecake Factory, as indicated in an August regulatory filing. The investor is advocating for the separation of three brands: North Italia, Flower Child, and Culinary Dropout, each with a unique dining concept, The Wall Street Journal reported on Tuesday.
JCP believes these brands could flourish independently, with dedicated management teams focusing on their growth objectives. The activist investor has also expressed a willingness to provide capital to aid the new entity’s expansion, according to sources familiar with the situation.
The Cheesecake Factory, based in Calabasas, California, operates over 300 locations across the U.S. and Canada. Known for its extensive menu, the company has faced challenges in recent years, with growth stalling since 2017. A spokesperson for Cheesecake Factory acknowledged JCP’s investment and stated the company regularly engages with shareholders to consider their perspectives.
Why It Matters: The push for a strategic breakup by JCP Investment Management comes at a time when Cheesecake Factory has been grappling with stagnant growth. The company’s performance has been under scrutiny, and the proposed separation of its brands could potentially unlock value and drive growth. The move aligns with broader trends in the restaurant industry, where companies are exploring ways to streamline operations and focus on core strengths.
Moreover, the willingness of JCP to provide capital for expansion highlights the investor’s confidence in the potential of the spun-off brands. This development could lead to increased competition in the dining sector, as the newly independent brands strive to establish their presence and capture market share.
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