We remain Neutral on restaurant company
The Cheesecake Factory Inc.
. Although the company's earnings and revenue growth in the
second quarter of 2013, a benign food cost outlook and
international expansion plan impress us, the company's inability
to meet the Zacks Consensus Estimate on both counts and a trimmed
outlook for the full year keep us on the sidelines at the current
Why the Reiteration?
On Jul 24, 2013, Cheesecake Factory reported second-quarter 2013
earnings of $0.54 per share, up 5.9% year over year. Improvement
in the top line contributed to the year-over-year earnings growth
during the quarter. Revenues grew 3.4% year over year, driven by
positive comparable stores sales.
While Cheesecake is susceptible to higher input costs like all
other restaurant companies, management commented that commodity
inflation has moderated on an annualized basis. Management has
been lowering its food cost inflation outlook for the past three
We also view the company's initiative to expand beyond the U.S
positively. The company started its overseas expansion in Aug
2012 by venturing into Dubai and has already opened three
restaurants in the Middle East in 2012. In Aug 2013, the company
opened a restaurant in Puerto Rico. Cheesecake has extensive
expansion plans in various countries of the Middle East and Latin
America over the long term.
However, despite these enthusiastic facts, some concerns prevent
us from being too optimistic on the stock. Following
lower-than-expected second-quarter results, management trimmed
its guidance for comps and earnings for full year 2013. Despite
an expected decline in cost of sales for 2013, a cut in earnings
per share guidance is a concern. Further, the sales scenario is
also not quite encouraging mainly due to weak consumer spending.
The Cheesecake Factory currently carries a Zacks Rank #3 (Hold).
Other players in the restaurant industry, which look attractive
at current levels, include
The Wendy's Co.
AFC Enterprises Inc.
Burger King Worldwide Inc.
), all carrying a Zacks Rank #2 (Buy).
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