The Cheesecake Factory

R E S E A R C H B R I E F

September 25, 2020

James Rutherford, Analyst 501-377-8221, [email protected] The Cheesecake Factory CAKE – NASDAQ Sean Cuskley, Associate Underweight Reason for Report: Company Update Changes Previous Current Rating -- Underweight Target Price -- $18.00 What the Mkt. is Missing on CAKE. Plus an Price: $28.27 Analysis of CAKE's 18K Mall Neighbors Fully Diluted Shares Out (mil.): 45.46 52-Week High: $44.35 INVESTMENT CONCLUSION: 52-Week Low: $14.52 CAKE shares have had a strong run over the last few months. This Market Cap (mil.): $1,285.2 baffles us given our conviction that The Cheesecake Factory will Fiscal Year End: Dec face compounding structural challenges over the next several years due to their mall-centric footprint. Clearly the market does not yet Average Daily Volume: 1,026,961 believe in these medium-term structural headwinds, and it's easy Float: 92.3% to see why. COVID-19 has caused most investors to look almost Debt/Cap: 75.8% exclusively at immediate, month-to-month comp improvement (where Cash/Shr: $5.62 CAKE has faired "OK"). In this note we examine four common bull / Dividend/Yield: $0.00/0.0% bear arguments. The core thrust of our caution on CAKE is that we Book Value/Shr: $7.74 believe (1) Cheesecake's fate is tied to the fate of the traditional EPS 2019A 2020E 2021E mall...especially over the medium- and long-term, (2) even the Class- A malls are in a bad spot - see our comprehensive analysis of every Mar $0.60A ($0.09)A $0.29 tenant that shares the mall with CAKE, and (3) over time this will lead Jun $0.79A ($1.61)A $0.26 to sub-par results. Sep $0.36A ($0.60) $0.28 Dec $1.10A ($0.10) $0.21 KEY POINTS: FY $2.86A ($2.39) $1.05 Note Contents: P/E 9.9x NM 26.9x

Adj. EPS 2019A 2020E 2021E Mar $0.62A $0.04A $0.31 Jun $0.82A ($1.03)A $0.29 Sep $0.58A ($0.43) $0.30 Dec $0.58A ($0.02) $0.25 FY $2.61A ($1.51) $1.15 P/E 10.8x NM 24.6x

Rev. $2.48B $1.94B $2.49B . The Cheesecake Factory Inc. is a California-based chain that operates several restaurant concepts including The Cheesecake Factory, North Italia, Flower Child, Grand Luxe, and a variety of others.

See important disclosures and analyst certification on pages 23 - 24 of this report. This report constitutes a compendium report (covers six or more subject companies). As such, Stephens Inc. chooses to provide specific disclosures for the companies mentioned by reference. To access current disclosures for the companies in this report, clients should refer to https://stephens2.bluematrix.com/sellside/Disclosures.action or contact your Stephens Inc. representative for additional information.

Bull / Bear Argument #1: Does Cheesecake Rely on Mall Traffic?

Bull Argument: The Cheesecake Factory restaurants do not rely on mall traffic. It is the other way around.

Our Response: First, we believe the relationship between The Cheesecake Factory and malls is symbiotic. Each benefits from the other. So, the health of mall traffic does in fact matter, both for near-term trends and for the long-term health of the centers where CAKE units are located. If this were not true then Cheesecake Factory units would not be consistently located at the immediate entrance for malls. In our initiation and comprehensive footprint analysis (link) we show that of the 65% of Cheesecake Factory locations that are located in traditional malls, 20% are on an out parcel, 20% are end- cap and the rest are either traditional in line or a kind of "stand-out" in line as pictured below. In the vast majority of the cases that units are in line or "stand-out" in-line, they are immediately adjacent to the main mall entrance, presumably to benefit from the increased visibility and traffic as people come and go from the center. Clearly, CAKE does believe it can benefit from mall traffic otherwise why pay the higher rent to be right next to the entrance? See Figure 1 below for a view of a common placement for a Cheesecake unit at the entrance to a mall.

Figure 1: A Fairly Standard Cheesecake Factory Placement

Cheesecake Mall Factory entrance

Sources: Stephens Inc.

Second, while The Cheesecake Factory units do benefit from mall traffic, there is truth that the mall probably benefits more from Cheesecake than the other way around. We can see this in traffic. In June those Cheesecake Factory units that were open for dine- in were doing comps of -25%. Yes, a good chunk of this was off-premise, but still -25% looks a lot better than average mall traffic. Simon Property Group (most important landlord for CAKE) had total foot traffic of around -40% in June and even in late August, Simon is still running -30% foot traffic across its portfolio. So Cheesecake has been doing better than the malls themselves. But is this a good thing for Cheesecake? Frankly, this it means that The Cheesecake Factory is one of the best houses in the generally troubled neighborhood. To us, this is not an enviable position.

Third, CAKE management has spoken in the past about a linkage between mall traffic and traffic at The Cheesecake Factory restaurants. In May 2017, CAKE management said on an earnings call:

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“We certainly monitor the number of vacancies in a mall…so we believe a critical mass of destinations for those malls benefits everybody, so we’re happy to see some of those trends in these better malls move towards having movie theaters and more options.” – CAKE management on a 2017 earnings call

The relationship between The Cheesecake Factory and malls is symbiotic.

Bull / Bear Argument #2: Does It Still Matter that CAKE is in the Class-A Malls?

Bull Argument: Cheesecake units are mostly located in Class-A malls, which are not seeing the same struggles as Class-B, Class-C, and Class-D properties.

Our Response: Perhaps this a good bull argument in the past, but in the current environment we stand firmly on the bear side of this argument. In the sections below we will show that (1) brick and mortar mall retailers are troubled, (2) because of the issues facing retailers, even high-quality malls are in crisis, and (3) Cheesecake Factory shares mall space with many traditional mall retailers that are in a fight for their lives - this based on our comprehensive review of all ~18,000 co-tenants across CAKE’s traditional mall footprint. Before COVID, we do think being in Class-A malls was a positive for the brand, but that advantage is less clear in a COVID environment and it accelerates the declines that all malls are facing. See these points expanded upon below.

FIRST, it goes without saying, but most brick and mortar retailers are in a fight for their lives. The headlines are full of closures and bankruptcies (Lord & Taylor, Brooks Brothers, Macy’s, JC Penney, GNC, the list goes on…). Coresight Research, an industry research firm, predicts that 20,000 – 25,000 retail stores will close in 2020, up from the previous record of 9,300 in 2019. Furthermore, Coresight predicts that 55% - 60% of these will be in malls. This will include stores both large and small. Some of these will be in Class-B malls and below but some will also be in Class-A malls. The picture is bleak for large department stores, specifically, where foot traffic has stagnated at meaningfully negative levels here in August. See Figure 2 below.

Figure 2: Year-Over-Year Dept. Store Traffic Declines, By Week, Through August

Source: Placer.ai

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SECOND, mall owners are now feeling the pain that their tenants are feeling. This is a new risk brought about by COVID. Pre-pandemic, CAKE spoke to the strength of their landlords as an advantage for Cheesecake Factory. See the statement below.

“We’ve always been a tenant of choice, and simultaneously we’ve only gone into those A-malls that continue to reinvest capital to drive their own guest experience and continue to bring people in.” – CAKE management on a 2017 earnings call

If these A-Class malls become unable to “reinvest capital to drive their own guest experience”, then the distinction of being in Class-A malls becomes less advantageous.

So exactly how are the big mall operators getting along? Not well. Simon, as we said previously, is still running -30% foot traffic across its portfolio in August, and many tenants are still not paying rent. On the company’s August 11 earnings call, the following exchange took place:

Equity Analyst: “…you mentioned 91% of tenants were reopened in July but then [rent] collection was around 73%. So just wondering if you could go through why that amount isn’t closer to 91%.”

David Simon (CEO) full & complete answer: “Well, July is at 73% because certain tenants haven’t paid rent. They have contracts they’re obligated to [pay] but certain tenants haven’t paid.”

So Simon collected just 73% of its normal contractual rent dues in July, and that is only a very modest improvement from the 69% collection in June. Many retailers simply can’t pay their bills. This foreshadows future store closures and troubled mall operators.

Figure 3: The Dangerous Cycle Facing Malls Today

Source: Stephens Inc.

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THIRD, we conducted an in-depth analysis of the malls where Cheesecake Factory units are located, and we conclude based on the types/quality of its neighbors, that the chain is not going to be immune to this mall crisis. In our May 2020 initiation we did a comprehensive analysis of the malls where Cheesecake Factory restaurants were located. Based on that, we determined that 65% / 132 of Cheesecake units are in traditional regional or super-regional malls with the others being in urban, special, or lifestyle centers.

We are expanding our analysis today with a comprehensive analysis detailing each and every retailer that shares mall space with Cheesecake Factory in their 132-unit traditional mall footprint. The analysis spans roughly 18,000 retailers. This study is useful because it shows (1) that Class-A malls have broadly the same retailers as Class- B malls, and (2) many of the most common retailers are facing deep problems. In Figure 4 below we show the stores that most commonly overlap with Cheesecake Factory. Then on pages 13-21, we give a comprehensive list of all stores that have at least a 5% overlap with Cheesecake Factory as well as recent news about store closures / bankruptcies for the chains that overlap most with CAKE.

Figure 4: The Future of “Cheesecake Factory Malls” Relies on These Retailers

Source: Stephens Inc.

The vast majority of the retailers listed above are facing dramatic changes to their businesses. Many are closing stores as demand accelerates its shift to digital. Some are going through bankruptcy. A few, like Bath & Body Works, are seeing COVID-related tailwinds. CAKE likes to highlight its overlap with Apple (we found the overlap to be 74%), but most of CAKE’s retailer overlap is much less advantageously positioned as Apple. See pages 12-21 for further analysis.

The CEO of H&M gave a clear summation of the “We can already see that the pandemic has caused structural change happening in retail, a change that changes in customer behavior that will accelerate the has profound implications for the future of the digitization of our industry.” American mall: - CEO of H&M on June 26, 2020

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Bull / Bear Argument #3: How Will Restaurant Competition Change at Malls?

Bull Argument: For several years new, independent restaurants have been a competitive headwind for Cheesecake Factory. If the pandemic causes many of them to close, it will benefit Cheesecake.

Our Response: This might be a temporary Band-Aid on a bigger problem. Over the medium term one of two things will happen: (1) the mall continues to decline and then it won’t matter if there is less new restaurant competition, or (2) the mall owner will try and aggressively revitalize in which case new, exciting, restaurants are going to be at the core of the revitalization strategy. There will be an abundance of space that mall owners will be anxious to fill with new restaurants at attractive lease rates. This is different than the scenario with other non-mall casual dining chains where independent closures will likely be more permanent given the supply glut that existed prior to COVID.

Bull / Bear Argument #4: But Hasn’t CAKE’s Comp Recovery Been Strong Already?

Bull Argument: The Cheesecake Factory comp recovery has been strong.

Our Response: We will evaluate this argument on a few levels: (1) strength of recently-reported results vs. peers, (2) near-term forward-looking demand indicators like foot traffic, and (3) medium-term consensus expectations (2021) and what investors have to believe in order for CAKE to meet those estimates.

FIRST, we summarize relative strength of recently reported results in Figure 5 below.

Figure 5: Month-by-Month Comp Recovery Across Full Service Diners

Sources: company documents, Stephens Inc. TXRH and CBRL only report monthly SSS results – we approximate weekly SSS based on company releases and industry trends; CBRL comparable sales are for restaurant sales only, and exclude store merchandise sales

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At the end of July, CAKE was running total company comps at around -30%, which put it squarely in the middle of the pack or even slightly below. There are a few factors that contributed to this result:  Pace in reopening dining rooms: Due to The Cheesecake Factory's heavy California exposure Cheesecake Factory was slower than its peers to reopen dining rooms. Reopening began in early May and 70% of units were open to dine-in by the end of June. The Cheesecake Factory was forced to keep its California locations closed to indoor dining in July, and much of August and September due to the state's government re-imposing indoor dining closures to start July.  Comps upon reopening dining rooms: The company noted during its last business update that it recovered 80% of the prior year's sales at restaurants where dining rooms have reopened, and at restaurants where dine-in was limited to outdoor-only, unit volumes were only 10% below those restaurants open for indoor dining.  Strength of off-premise: Off-premise, at its peak, reached about 40% of prior year total AUVs. Management said that Cheesecake Factory units have retained 90% of peak off-premise sales even as dining rooms reopened, though we expect this number to moderate. The Cheesecake Factory saw comps improve sequentially through the quarter: April was -66%, June posted -42%, and QTD through July 26 (the last update the company provided), comparable sales at the Cheesecake Factory units were down approximately 32%. Once again, we view this a middle-of-pack type result when compared to peers.

SECOND, we look at near-term, forward-looking demand indicators, including foot traffic data from Placer and Google search trends, which we’d view as more informational and not a clear driver/link with demand.

App-based foot traffic data from Placer.ai gives a view into The Cheesecake Factory’s comp recovery. Figure 6 shows the Cheesecake Factory’s recovery, which has continued at a slow pace since the end of June / early July. Since August, traffic has averaged down 33% YOY, and excluding a few outliers to start September, has remained consistently negative in the down low to high-30% range. In short, this is not a robust recovery.

Figure 6: The Cheesecake Factory Average System-Wide Foot Traffic YOY

Source: Placer.ai

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Weekly search trend data available through Google gives a sense of the changing consumption interests across consumers looking to purchase a meal from the Cheesecake Factory. Google Trends offers an unbiased sample of Google search data, and the data is indexed by interest. 100 represents the period of maximum search interest and 0 represents the period with the lowest interest. From the data presented in figure 7 below, it is clear that as restaurants closed to dine-in at the start of March, consumers quickly turned to dine-in and takeout at the Cheesecake Factory, while interest quickly changed back to dine-in consumption in May as restaurants began reopening. Overall, we can tell that as consumers progressed through the pandemic, interest in the Cheesecake Factory’s various consumption options declined. While we cannot make a direct correlation between search interest and sales results, we can assume that has interest has declined for both dine-in and off-premise consumption, sales performance likely declined as well, though the magnitude of this decline is difficult to predict.

Figure 7: Google Trends Search Results Related to the Cheesecake Factory

Source: Google Trends

THIRD, we look at current consensus estimate for 2021 and build three scenarios about what investors must believe for these estimates to be achieved. We don’t think hitting the current 2021 estimates is going to be an easy task.

In figure 8 we present current consensus expectations for AUV recoveries across casual diners. On the surface it does not appear as if expectations for the Cheesecake Factory’s AUV recovery to reach 92% of CY19 AUVs is overly aggressive. However, as we show in the scenarios below, investors need to believe in a strong comeback in CY21 on-premise dining.

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Figure 8: Expected AUV Recoveries Across Casual Diners by CY21 Company CY19 AUV CY21 AUV CY21 As a % of CY19 DENN $ 1.46 $ 1.54 105% EAT 2.48 2.50 101% DIN - APPLE 2.25 2.21 98% DRI - LH 3.63 3.56 98% DRI - OG 5.04 4.89 97% TXRH 5.48 5.30 97% BLMN - Carrabba's 2.89 2.79 97% BLMN - Outback US 3.62 3.45 95% CHUY 4.26 4.02 94% CBRL 3.72 3.44 92% CAKE 10.72 9.87 92% RRGB 2.77 2.51 91% BLMN - Bonefish 2.98 2.69 90% BJRI 5.67 5.08 90% DIN - IHOP 1.90 1.70 89% BLMN - Fleming's 4.45 3.87 87% RUTH 5.17 4.13 80% PLAY 10.54 7.67 73% Sources: Consensus Metrix, Stephens Inc.

Before laying out our three scenarios for 2021, we want to peel apart the components of 2019 and 2020 AUVs. The Cheesecake Factory units had AUVs of $10.7 mil. in 2019, with $1.74 mil. / 16% being off-premise and the rest being dine-in. Current expectations call for 2020 AUVs to be down 28% YOY to $7.7 mil., with off-premise running now at about a $4 mil. level and the rest being dine-in. See Figure 9 below. It is from this base that we build our 2021 scenarios.

Figure 9: 2019 and 2020 AUVs CY19 Base Case YOY Growth % of CY19 Sales AUV $ 10.72 Off-Prem 1.74 On-Prem 8.98

CY20 COVID Performance YOY Growth % of CY19 Sales AUV $ 7.70 -28% 72% Off-Premise 4.23 143% On-Premise 3.47 -61%

Sources: Consensus Metrix, Stephens Inc.

In scenario #1, 2021 Cheesecake Factory AUVs recover to $9.9 mil. / 92% of 2019 levels. They would get there by increasing dine-in sales by 124% (from $3.5 mil. annualized today, up to $7.8 mil. in 2021), which would offset the 50% decline in off-premise in this scenario. How likely are these outcomes? Well, we think getting dine-in to $7.8 mil. may be difficult given where it is running today, the capacity restrictions, and the potential for future case flair-ups. The 50% decline in off-premise sales, on the other hand, seems quite reasonable, given it would put off-premise sales at $2.1 mil., which is roughly 20% above 2019 levels. This seems reasonable, while the growth in on-premise dining does not. See Figure 10 below.

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Figure 10: CY21 AUV Scenario #1 CY21 Scenario #1 YOY Growth % of CY19 Sales AUV $ 9.87 28% 92% Off-Premise 2.12 -50% On-Premise 7.76 124% Sources: Consensus Metrix, Stephens Inc.

Under scenario #2, 2021 Cheesecake Factory AUVs again recover 92% of 2019 sales, but this time we have off-premise declining only 40% from 2020 levels (leading to $2.5 mil. off-prem AUV / 46% above 2019 level), and we have on-premise increasing to $7.3 mil. This scenario for off-premise is fairly optimistic but do-able in our view. We do think off- prem sales will be sustainably higher than before the pandemic, but 46% above 2019 levels feels perhaps a bit of a stretch. Furthermore this scenario still assumes fairly robust on-premise sales growth of 112%, which we think could be difficult to achieve given the COVID related headwinds mentioned above. Again, expectations for The Cheesecake Factory’s ability to achieve 92% of 2019 sales may be a bit stretched. See Figure 11 below.

Figure 11: CY21 AUV Scenario #2 CY21 Scenario #2 YOY Growth % of CY19 Sales AUV $ 9.87 28% 92% Off-Premise 2.54 -40% On-Premise 7.33 112%

Sources: Consensus Metrix, Stephens Inc.

In scenario #3, 2021 Cheesecake Factory AUVs still reach 92% of 2019 sales, but we include a more aggressive assumption for off-premise, namely, a decline of only 30% from 2020 levels. Immediately when CAKE reopens dining rooms, it loses 10% of off- premise sales, so this scenario assumes a fairly low amount of additional off-premise sales losses even as the world presumably returns more back to “normal”. This scenario includes the most conservative on-premise sales level of only $6.9 mil., which is still up 100% from 2020 levels, but would still be down over 20% from 2019 levels. We believe this scenario is reasonable for the on-premise sales level, but too aggressive for off- premise. See Figure 12 below.

Figure 12: CY21 AUV Scenario #3 CY21 Scenario #3 YOY Growth % of CY19 Sales AUV $ 9.87 28% 92% Off-Premise 2.96 -30% On-Premise 6.91 99%

Sources: Consensus Metrix, Stephens Inc.

The Current Operating Status of Cheesecake Factory Units

Currently, we estimate that 201 of 203 Cheesecake Factory locations in the U.S. are open to dine-in, two units are temporarily closed, and one unit in Stamford, CT closed during F3Q (previously disclosed). Of the 203 Cheesecake Factory units, 176 units (86%) currently offer outdoor patio seating, including 36 of 39 units in California which has likely helped mitigate the impact of closures in the state. We estimate that 50% of indoor capacity (ex patio space) is currently available across the Cheesecake Factory footprint.

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Valuation

The multiple on CAKE is high when we compare it to the pre-pandemic level. One of the best ways to examine multiples is by the percentage of pre-pandemic EV/EBITDA multiple that has been recovered today. For the “pre-pandemic multiple” we calculate the 30-day average NTM EV/EBITDA multiple leading up to the Feb 21 sell-off. For the current multiple we look at “NTM+1”, which essentially is calendar 3Q21 – 2Q22. CAKE trades at 105% of its pre-pandemic multiple, vs. an average across casual dining of 96%. In fact the only casual that has had more multiple recovery is EAT.

Figure 13: Current EV/EBITDA Multiple vs. Pre-Pandemic EV/EBITDA

Sources: FactSet Research Systems, company documents, and Stephens Inc.

We reiterate our $18 twelve month price target based on 5.5x EV/EBITDA one year from today. We believe 5.5x is the right multiple as it is the midpoint between the Great Recession low (4.0x) and the low point of the last five years (7.0x). Note that our 2021 and 2022 EBITDA estimates are in line or even slightly above consensus EBITDA expectations.

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Appendix: Comprehensive Mall Retailer Overlap Analysis:

Below is a list of all retailers that have at least a 5% overlap with Cheesecake Factory restaurants. For example, there is a Lids store in 94% of malls where The Cheesecake Factory has a presence. If available, for the larger overlaps, we have also included pertinent commentary around store closures, bankruptcies, and the like.

Figure 14: All Retailers Where Cheesecake Overlaps At Least 60% of the Time (Excludes Restaurants), and Applicable Retailer Commentary: Percentage of Notes Co-Tenant Time Co-Tenant (when available, on retailers with >60% overlap) Overlaps With a Journeys 134% Doubled digital business over last 5 years. Said on 2Q call they "aim to further accelerate" that growth and double it again. Sunglass Hut 133% Bath & Body Works 100% Seeing "holiday-like volumes" due to increased demand for soaps and sanitizers. Claire's 95% Went through bankruptcy in 2018 Lids 94% Victoria's Secret 94% Announced in May 2020 it will close 250 stores. Already in decline pre-pandemic. Vans 91% Meaningful focus on digital (online) growth before pandemic / accelerating that focus now. T-Mobile 90% Macy's 88% Foot traffic -40% to -50% in Aug. Sephora 88% Scuffle with JC Penney over co-located stores and the imapct of the JCP bankruptcy. American Eagle Outfitters 87% Said on 2Q earnings call they are planning to increase store closures due to sucess of digital and need to lower fixed costs. LensCrafters 87% Zumiez 85% ALDO 84% Filed for bankruptcy in May 2020 Express 83% Announced in Jan 2020 it will close 100 locations by 2022 due to poor sales Pandora 83% Organic growth was -2% in 2018 and -8% in 2019...and then COVID hit. Kay Jewelers 82% Signet Jewlers (parent of Kay, Zales, Jared, Piercing Pagoda) announced in Jun it will close >20% of stores Hollister 81% Said on 2Q earnings call that 25% of leases are coming due and will have conversations about their future. Closings on the table. Forever 21 78% Acquired out of bankruptcy in Feb 2020 by Simon Prop. Group, Brookfield Properties, and Authentic Brands Group H&M 77% Hot Topic 77% Francesca's 76% In Jun 2020 warned it may need to file for bankruptcy protection. On Sep earnings call, CEO said they are strategic discussions. Apple 74% Spencer's 73% Champs Sports 72% COVID is accelerating the company's plan to cut mall-based locations (plan was to cut 150 stores pre-pandemic) Gamestop 70% Planning to close 400 - 450 locations this year. LUSH 69% PacSun 69% Build-A-Bear 68% Said on the 2Q earnings call in Sep "...we believe it is critical to continue to have the flexibility to exit locations." Zales 68% Signet Jewlers (parent of Kay, Zales, Jared, Piercing Pagoda) announced in Jun it will close >20% of stores Foot Locker 67% COVID is accelerating the company's plan to cut mall-based locations (plan was to cut 150 stores pre-pandemic) Piercing Pagoda 67% Signet Jewlers (parent of Kay, Zales, Jared, Piercing Pagoda) announced in Jun it will close >20% of stores Michael Kors 64% Announced in May it will close 150 stores by 2022. Noted MK stores are located "in the best shopping centers in the world" AT&T 63% Announced in Jun it will close >250 stores. JCPenney 63% Closing many stores due to bankruptcy The Children's Place 63% Announced in June it would close 200 stores in 2020 and 100 more by 2021 Aeropostale 62% Went through bankruptcy in 2016. Acquired by Authentic Brands Group and Simon Property Group and closed 70% of its stores. Pottery Barn 61% In May said they have lease expirys in 1/2 leases in next 3 yrs. Said they are "able to make a lot of decisions based on the malls". Abercrombie & Fitch 60% Said on 2Q earnings call that 25% of leases are coming due and will have conversations about their future. Closings on the table. White House Black Market 60% Announced 90 closures in early 2019 Source: Stephens Inc.

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Figure 15: Comprehensive Co-Tenant Analysis When Overlap with Cheesecake Factory is at Least 5% (Excludes Restaurants) Percentage of Time Co- Tenant Overlaps Co-Tenant With a Cheesecake Factory Location Journeys 134% Sunglass Hut 133% Bath & Body Works 100% Claire's 95% Lids 94% Victoria's Secret 94% Vans 91% T-Mobile 90% Macy's 88% Sephora 88% American Eagle Outfitters 87% LensCrafters 87% Zumiez 85% ALDO 84% Express 83% Pandora 83% Kay Jewelers 82% Hollister 81% Forever 21 78% H&M 77% Hot Topic 77% Francesca's 76% Apple 74% Spencer's 73% Champs Sports 72% Gamestop 70% LUSH 69% PacSun 69% Build-A-Bear 68% Zales 68% Foot Locker 67% Piercing Pagoda 67% Michael Kors 64% AT&T 63%

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JCPenney 63% The Children's Place 63% Aeropostale 62% Pottery Barn 61% Abercrombie & Fitch 60% White House Black Market 60% Swarovski Crystal 59% Windsor 59% Finish Line 58% Aerie 58% GNC 58% Coach 56% Loft 56% Banana Republic 54% Buckle 54% PINK 53% Gap 51% M.A.C 51% Torrid 50% Yankee Candle 50% J. Jill 49% lululemon 48% Nordstrom 48% Verizon Wireless 48% Helzberg Diamonds 48% Brighton Collectibles 46% Soma 46% Chico's 45% Godiva Chocolatier 45% L'Occitane 44% BoxLunch 43% Ann Taylor 43% GAP KIDS 43% Kids Foot Locker 43% Sleep Number 43% Icing 42% Things Remembered 40% Williams-Sonoma 40% J.Crew 39% Lucky Brand 39% Cotton On 38% Sprint 38% Vera Bradley 38%

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Disney Store 37% Lovesac 37% Tillys 36% Aveda 35% Cellairis 35% LEGO Store 35% Oakley 35% The Walking Company 35% Dillard's 33% New York & Company 33% TUMI 33% Clarks 32% Garage 32% Dick's Sporting Goods 31% The Body Shop 31% Athleta 30% Bare Minerals 30% Eddie Bauer 29% Talbots 29% Visionworks 29% Anthropologie 28% Charlotte Russe 28% House of Hoops by Foot Locker 28% Old Navy 28% Urban Outfitters 28% Altar'd State 28% Janie and Jack 28% Johnston & Murphy 28% ZARA 28% Abercrombie Kids 26% Barnes & Noble 26% Justice 26% Skechers 26% Alex and Ani 25% Free People 25% Madewell 25% Peloton 25% Fabletics 24% Lolli & Pops 24% Lovisa 24% Fossil 23% Casper 23% Tommy Bahama 23%

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Go! Calendar & Games 22% Hallmark 22% Louis Vuitton 22% Nordstrom Ebar 22% UNTUCKit 22% Baby Gap 21% Bank of America 21% The Fix 21% Brooks Brothers 20% Crate & Barrel 20% Footaction 20% Kate Spade New York 20% See's Candies 20% Dry Goods 19% Brow Art 23 18% Everything But Water 18% Steve Madden 18% Express Men 18% Kendra Scott 18% Morphe 18% Tesla 18% Tiffany & Co. 18% Arhaus Furniture 17% Daniel's Jewelers 17% Tempur-Pedic 17% Tory Burch 17% Guess 16% Soft Surroundings 16% Cellaxs 15% Evereve 15% The North Face 15% Ulta Beauty 15% Vineyard Vines 15% Zagg 15% bloomingdale's 14% ECCO 14% Lacoste 14% rue21 14% Shoe Mgk 14% Shoe Palace 14% BOSS 13% Leggings Park 13% AMC Theatres 13%

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Burberry 13% Kiehl's Since 1851 13% Lane Bryant 13% Lord & Taylor 13% Rack Room Shoes 13% Seventh Sense Botanical Therapy 13% SHOE DEPT. 13% The Container Store 13% Ben Bridge Jewelers 12% Famous Footwear 12% FYE 12% Intimissimi 12% Invicta 12% Lilly Pulitzer 12% Neiman Marcus 12% SP Shoe Palace 12% ThinkGeek 12% White Barn Candle Co. 12% Call It Spring 11% Fanzz 11% Fast-Fix Jewelry & Watch Repair 11% Johnny Was 11% Men's Wearhouse 11% Origins 11% Attic Salt 10% Dakota Watch Company 10% David Yurman 10% Earthbound Trading Company 10% Gucci 10% Stuart Weitzman 10% Tokyo Japanese Lifestyle 10% Tradehome Shoes 10% UNIQLO 10% 7 for All Mankind 9% Amazon 4-star 9% Charleys Grilled Subs 9% Crocs 9% Edge 9% Fast Fix Jewelry & Watch Repair 9% Fast Fix Jewelry and Watch Repairs 9% G By Guess 9%

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Innovative Foto 9% Kevin Jewelers 9% Kokee Tea 9% Microsoft Store 9% Q 9% Typo 9% Warby Parker 9% Akira 8% Brow Arc 8% Carter's 8% Charming Charlie 8% Customized Teez 8% Indochino 8% Lady Foot Locker 8% Montblanc 8% Nespresso 8% Perfumania 8% Shoe Show 8% Villa Pizza 8% Von Maur 8% Xfinity 8% Yogibo 8% Zoomsystems 8% A|X Armani Exchange 8% Allen Edmonds 8% Aveda Lifestyle Store 8% Calzedonia 8% CH Carolina Herrera 8% Club Monaco 8% Cohen's Fashion Optical 8% Cricket Wireless 8% DSW Shoes 8% Eyebrow Designer 21 8% JD Sports 8% Johnny Rockets 8% maurices 8% Relax Station 8% Restoration Hardware 8% Robert Wayne Footwear 8% SEARS 8% Surf City Squeeze 8% Target 8% Zagg Invisible Shield 8%

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adidas 7% Belk 7% Brow Beauty 7% Currency Exchange International 7% eBar at Nordstrom 7% Forever Flawless 7% Jos. A. Bank 7% Mall Management Office 7% Metro PCS 7% Na Hoku 7% OMEGA 7% Papaya 7% Rocky Mountain Chocolate Factory 7% Saks Fifth Avenue 7% Salvatore Ferragamo 7% Samsonite 7% Valet Parking 7% Versona 7% Visible Changes 7% All Clean 6% Cartier 6% Color Me Mine 6% Fast-Fix Jewelry & Watch Repairs 6% Gap Body 6% Hope & Henry 6% InfiniteVR 6% Jimmy Choo 6% Jimmy Jazz 6% Just Sports 6% Lavelier 6% Marmi 6% Mind Games 6% Mobile Fix & More 6% NYS Collection 6% Orangetheory Fitness 6% Osh Kosh B'Gosh 6% Paper Source 6% Pearle Vision 6% PLAYlive Nation 6% Primark 6% Quay Australia 6%

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Ragstock 6% Refreshed Shoe Cleaner 6% Rogers & Hollands Jewelers 6% Sur La Table 6% Street Talk 6% Tutti 6% Vince 6% Wells Fargo 6% West Elm 6% Z Gallerie 6% Aritzia 5% Asian Chao 5% Books-A-Million 5% Boost Mobile 5% C & C Market Research 5% C&B Christopher and Banks 5% CELLTECH 5% China Max 5% Cole Haan 5% crewcuts 5% Dining Pavilion 5% Drybar 5% East Meets West 5% Escape The Room 5% Firestone 5% Fuego 5% iFix & Repair Center 5% Kiehl's 5% Kung Fu Tea 5% L.L.Bean 5% Lolli and Pops 5% Lorna Jane 5% Metro by T-Mobile 5% Miniso 5% Mori Luggage & Gifts 5% Orange Julius 5% Oriental Chi 5% Potato Corner 5% Prada 5% Pro Image Sports 5% Q Fashion 5% Q Luv 5% REI 5%

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Resveralife 5% Round 1 Bowling & Amusement 5% Saje Natural Wellness 5% Sally Beauty Supply 5% Sears Optical 5% Shapes Brow Bar 5% Solstice Sunglasses 5% Spirit Halloween 5% Sports Fever 5% Sweet Factory 5% Travelex Currency Services 5% Under Armour 5% Vine Vera 5% Volcom 5% Source: Stephens Inc.

Stephens Inc. Page 21 Research Brief September 25, 2020 Companies Mentioned Other Than Those In the Chart On Pages 13-21 Ticker Company Price ANF Abercrombie & Fitch Co. Class A $ 14.58 GOOGL Alphabet Inc. Class A $ 1,409.39 APO Apollo Global Management Inc. Class A $ 43.93 AAPL Apple Inc. $ 107.12 T AT&T Inc. $ 27.87 BJRI BJ's Restaurants, Inc. $ 30.86 BLMN Bloomin' Brands, Inc. $ 14.18 EAT Brinker International, Inc. $ 43.65 BAM Brookfield Asset Management Inc. Class A $ 31.93 BKE Buckle, Inc. $ 20.13 CPRI Capri Holdings Limited $ 20.08 CHS Chico's FAS, Inc. $ 1.01 PLCE Children's Place, Inc. $ 26.89 CHUY Chuy's Holdings, Inc. $ 19.12 CBRL Cracker Barrel Old Country Store, Inc. $ 115.21 DRI Darden Restaurants, Inc. $ 90.00 PLAY Dave & Buster's Entertainment, Inc. $ 16.11 DENN Denny's Corporation $ 10.07 DDS Dillard's, Inc. Class A $ 30.14 DIN Dine Brands Global, Inc. $ 52.95 EL Estee Lauder Companies Inc. Class A $ 207.63 EXPR Express, Inc. $ 0.70 FL Foot Locker, Inc. $ 33.11 FRAN Francesca's Holdings Corporation $ 2.49 GME GameStop Corp. Class A $ 10.04 GPS Gap, Inc. $ 16.55 GCO Genesco Inc. $ 24.22 HNNMY H&M Hennes & Mauritz AB Unsponsored ADR $ 3.34 JCPNQ J. C. Penney Company, Inc. $ 0.26 JDSPY JD Sports Fashion Plc Unsponsored ADR $ 10.11 KSS Kohl's Corporation $ 20.15 LB L Brands, Inc. $ 30.10 LVMUY LVMH Moet Hennessy Louis Vuitton SE Unsponsored ADR $ 92.44 M Macy's Inc $ 6.11 NWL Newell Brands Inc $ 16.89 JWN Nordstrom, Inc. $ 12.23 PANDY Pandora A/S Sponsored ADR $ 18.50 RRGB Red Robin Gourmet Burgers, Inc. $ 12.99 RUTH Ruth's Hospitality Group, Inc. $ 10.60 SIG Signet Jewelers Limited $ 17.51 SPG Simon Property Group, Inc. $ 62.89 TPR Tapestry, Inc. $ 16.59 TXRH Texas Roadhouse, Inc. $ 60.99 TMUS T-Mobile US, Inc. $ 109.00 VFC V.F. Corporation $ 69.07 Stephens Inc.WSM Williams-Sonoma, Inc. $ 88.40 Page 22 ZUMZ Zumiez Inc. $ 27.57 Research Brief September 25, 2020

APPENDIX A ANALYST CERTIFICATION The analyst primarily responsible for the preparation of the content of this report certifies that (i) all views expressed in this report accurately reflect the analyst's personal views about the subject company and securities, and (ii) no part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the analyst in this report.

REQUIRED DISCLOSURES The research analyst principally responsible for preparation of this report has received compensation that is based on the firm's overall revenue which includes investment banking revenue. Stephens Inc. maintains a market in the common stock of The Cheesecake Factory as of the date of this report and may act as principal in these transactions. Stephens Inc. expects to receive or intends to seek compensation for investment banking services from The Cheesecake Factory in the next three months.

Rating and Price Target History for: The Cheesecake Factory (CAKE) as of 09-24-2020

08/04/17 10/11/17 02/22/18 04/26/18 10/30/19 05/13/20 07/13/20 07/30/20 EW:$48 EW:$45 EW:$48 EW:$55 EW:$48 UW:$14 UW:$15 UW:$18 70 60 50 40 30 20 10 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2 Q3

Created by: BlueMatrix

Valuation Methodology for The Cheesecake Factory Our 12-month target price for CAKE is based on an EV/EBITDA multiple and an analysis of comparable companies and CAKE's own historical multiple. Risks to Achievement of Target Price for The Cheesecake Factory Competition. Each of The Cheesecake Factory’s business segments operate in the highly competitive casual dining segment where periods of heavy promotional activity, value-focused offerings, or higher quality menu items offered from competitors could weigh on operations. Labor. Each of The Cheesecake Factory’s business segments operate large and complex restaurants that need experienced management and labor resources. Should The Cheesecake Factory find itself unable to hire or retain high-quality employees, operating results could be negatively impacted. Wage Inflation. Given The Cheesecake Factory is a 100% company-operated model, certain legislation and other factors impacting wage inflation could have adverse effects on restaurant-level profitability and the company’s desire to build new units in high-wage rate states. SSS Growth. Any material decline in SSS trends, whether it is driven by a slowing macro economy or competitive pressures, could limit comparable sales growth. A slowdown in SSS could pose a risk to the stock’s valuation, near-term unit level economics, EPS estimates, and the stock’s valuation. This is more heavily compounded for brands with a higher company-operated percentage, given the implicit P&L leverage in the model vs. franchised peers. Macro Slowdown. The restaurant sector has significant exposure to macroeconomic trends, and should the spread of coronavirus or general macroeconomic uncertainty lead to an economic slowdown over a prolonged period, consumers will continue to eat out less often which will negatively impact sales results. Unit Growth. The Cheesecake Factory continues to be a unit growth story, especially with smaller concepts such as North Italia and Flower Child. However, should execution weaken or sales slow at existing units or new locations, it could pose a risk to future unit growth and negatively affect the company’s business model and outlook. Mall Exposure. Many of The Cheesecake Factory’s units are located attached to shopping mall centers. This can create volatility/ uncertainty around traffic trends as mall traffic slows in the U.S. Commodity Exposure. Commodity price fluctuations could negatively impact restaurant-level profitability. Ratings Definitions OVERWEIGHT (O) - The stock's total return is expected to be greater than the total return of the company's industry sector, on a risk- adjusted basis, over the next 12 months. EQUAL-WEIGHT (E) - The stock's total return is expected to be equivalent to the total return

Stephens Inc. Page 23 Research Brief September 25, 2020 of the company's industry sector, on a risk-adjusted basis, over the next 12 months. UNDERWEIGHT (U) - The stock's total return is expected to be less than the total return of the company's industry sector, on a risk-adjusted basis, over the next 12 months. VOLATILE (V) - The stock's price volatility is potentially higher than that of the company's industry sector. The company stock ratings may reflect the analyst's subjective assessment of risk factors that could impact the company's business.

Distribution of Stephens Inc. Ratings IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [OW] 225 55.15 44 19.56 HOLD [EW] 180 44.12 38 21.11 SELL [UW] 3 0.74 0 0.00

OTHER DISCLOSURES Certain investment programs offered by Stephens to clients sometimes engage in purchases or sales of securities that are consistent or inconsistent with Research Analyst recommendations. These programs are managed on a discretionary basis, or provide investment recommendations, by program managers in the exercise of their independent judgment and analysis. Stephens’ directors, officers and employees are allowed to participate in these programs subject to established account minimums and applicable compliance restrictions. This report has been prepared solely for informative purposes as of its stated date and is not a solicitation, or an offer, to buy or sell any security. It does not purport to be a complete description of the securities, markets or developments referred to in the material. Information included in the report was obtained from internal and external sources which we consider reliable, but we have not independently verified such information and do not guarantee that it is accurate or complete. Such information is believed to be accurate on the date of issuance of the report, and all expressions of opinion apply on the date of issuance of the report. No subsequent publication or distribution of this report shall mean or imply that any such information or opinion remains current at any time after the stated date of the report. We do not undertake to advise you of any changes in any such information or opinion. Additional risk factors as identified by the Subject Company and filed with the Securities and Exchange Commission may be found on EDGAR at www.sec.gov. Prices, yields, and availability are subject to change with the market. Nothing in this report is intended, or should be construed, as legal, accounting, regulatory or tax advice. Any discussion of tax attributes is provided for informational purposes only, and each investor should consult his/her/its own tax advisors regarding any and all tax implications or tax consequences of any investment in securities discussed in this report. From time to time, our research reports may include discussions about potential short-term trading opportunities or market movements that may or may not be consistent with Stephens’ long-term investment thesis, rating, or price target. Please note that we provide supplemental news and analysis in Quick Take blogs available to clients on our website. If applicable, when reading research on Business Development Companies, you should consider carefully the investment objectives, charges, risks, fees and expenses of the investment company before investing. The prospectus, and, if available, the summary prospectus, contain this and other information about the investment company. You can obtain a current prospectus, and, if available, a summary prospectus, by calling your financial consultant. Please read the prospectus, and, if available, the summary prospectus, carefully before investing as it contains information about the previous referenced factors and other important information. Also, please note other reports filed with the Securities and Exchange Commission by the relevant investment company at www.sec.gov. Please also note that the report may include one or more links to external or third-party websites. Stephens Inc. has not independently verified the information contained on such websites and can provide no assurance as to the reliability of such information, and there can be no assurance that any opinions expressed on such websites reflect the opinions of Stephens Inc. or its management. Additional information available upon request.

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