Cheesecake Factory Inc.
) adjusted earnings of 52 cents per share in the third quarter of
2013 increased 6.1% year over year on the back of an improved top
line. Earnings per share also beat the Zacks Consensus Estimate
of 51 cents by a penny and were within the company's guided range
of 51 cents - 53 cents.
Cheesecake's revenues increased 3.5% year over year to $469.7
million, marginally beating the Zacks Consensus Estimate of
$469.0 million. Positive comparable restaurant sales
(comps) growth backed the year-over-increase in top line.
Inside the Headline Numbers
Comps grew 0.8% in the reported quarter, within the guided range
of flat to up 1%.
Comps nudged up 1.0% at Cheesecake Factory restaurant concept but
fell 2.6% at the company's other concept, Grand Lux Cafe.
Despite improvement in gross margin due to favorable food costs,
operating margin in the third quarter fell 50 basis points (bps)
year over year to 8.2%, hurt by higher operating expenses.
At the end of the third quarter of 2013, the company operated 176
restaurants with 2 new units opened in the third quarter. This
year management aims to open as many as 9 new company-owned
restaurants versus its prior guidance of 8 - 10 openings.
Internationally, the restaurateur expects to open one The
Cheesecake Factory restaurant in the Middle East under a
During the third quarter, the company bought back 2.1 million
shares of its common stock at a cost of $90.2 million.
After repurchasing 3.4 million shares in the first nine months
of the year for $135.5 million, the company targets to spend as
much as $65 million for share repurchases in the fourth quarter.
This indicates an additional $30 million of capital allocation
compared to its previous guidance. Overall, Cheesecake Factory
targets share buyback worth $200 million.
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Guidance for Fourth-Quarter 2013
For the fourth quarter of 2013, earnings per share are guided
between 57 cents - 60 cents. Comparable store sales are expected
to be up in the range of 1.5%--2.5%.
Guidance for 2013
For 2013, the company tightened its earnings per share guidance
to a range of $2.10-$2.13 from $2.10-$2.15 expected earlier,
anticipating lower external bakery sales. Prior to this, the
company had lowered its earnings guidance in the second quarter
The target for comps growth was maintained in the range of
1%-1.5%. Guidance for operating margin remained unchanged at an
increase of 50 bps. Operation margin growth in 2013 is likely to
be driven by international expansion, strong performance of its
international units and lower food costs.
Guidance for 2014
Management issued guidance for 2014. For 2014, earnings per share
are guided between $2.29 and $2.41. Comparable store sales are
expected to be up in the range of 1.0%-2.0%.
Food costs are expected to flare up in the coming year owing to
the scarcity of shrimp and salmon. Higher cost of shrimp and to
some extent salmon is expected to hurt earnings per share by 7 -
10 cents. However, management expects to weather these costs by
It expects to open as many as 10 to 12 company-owned restaurants
including one re-location. In addition, 3-5 restaurants are
expected to be opened in the Middle East and Mexico under
Cheesecake Factory beat the Zacks Consensus Estimate on both
counts and seems to be back on track after a disappointing second
quarter. Shareholder friendly steps like a solid buyback program
also inspire optimism around the stock.
However, continued underperformance at the Grand Lux Café and a
stringent food cost outlook for 2014 remain a concern. We would
like to see some more constructive developments before being too
optimistic on the stock. Cheesecake currently carries a Zacks
Rank #3 (Hold).
Some other companies from the restaurant sector that are worth a
Bob Evans Farms, Inc.
Cracker Barrel Old Country Store, Inc.
Dunkin' Brands Group Inc.
), all carrying a Zacks Rank #2 (Buy).