On May 29, 2014, we issued an updated research report on
The Cheesecake Factory Incorporated
On Apr 23, this restaurant chain posted mixed first quarter 2014
results with earnings missing the Zacks Consensus Estimate and
revenues beating the same. Adjusted earnings of 43 cents per share
declined 8.5% year over year and missed the company's guidance of
48 cents to 50 cents per share owing to inclement weather and a
holiday shift during the first quarter of 2014 as well as costs
associated with a pending settlement of a legal claim.
The restaurateur's revenues increased 4.0% year over year to $481.4
million driven by improved comps. Comps increased 0.9% year over
year and were more or less flat sequentially. Further, it was in
line with management's guidance range of 0.9% to 1.0%. Comps
reflect average check growth of 2.2% owing to an increase of 2.0%
in pricing and 0.2% change in mix. However, this was partially
offset by a decline of 1.3% in guest traffic. Comps compared
unfavorably with the year-ago increase of 1.4% owing to a negative
impact of approximately 2.0% due to severe winter storms and the
result of a holiday shift relative to the prior year.
The company has been reporting positive comps since the beginning
of 2013. Going forward, we expect the company to remain well
positioned with its pricing actions, menu innovations, and
international expansion in regions with potential for growth.
Moreover, the company's cash deployment strategy instills
confidence in its fundamentals.
However, continued underperformance of Grand Lux Café, one of the
company's segments, remains a matter of concern. With the exception
of the second quarter of 2013, comps at Grand Lux Cafe declined in
all other quarters of 2013 and also in the first quarter of 2014.
We believe that the company needs to adopt some sales building
measures to reinvigorate the brand.
Meanwhile, like all other restaurant chains, Cheesecake is also
vulnerable to food costs. The company expects food cost inflation
in the range of 3.0% to 4.0% in 2014, owing to higher meat and
dairy costs. Food costs were up 0.4% in April, the fourth straight
month of increase. In fact, in April, beef prices hit their highest
level in almost three decades. These factors indicate that
inflation may be creeping up, thereby compounding concerns for
restaurant chains. Weak consumer spending also adds to the woes.
Cheesecake Factory presently has a Zacks Rank #4 (Sell). Some
better-ranked stocks worth considering in the restaurant industry
Buffalo Wild Wings Inc.
Burger King Worldwide, Inc.
Carrols Restaurant Group, Inc.
). While Buffalo Wild Wings sports a Zacks Rank #1 (Strong Buy),
Burger King Worldwide and Carrols Restaurant Group carry a Zacks
Rank #2 (Buy).
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CHEESECAKE FACT (CAKE): Free Stock Analysis
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