The Cheesecake Factory Inc.
) posted fourth quarter and 2013 results. Adjusted earnings of 57
cents per share increased 11.8% year over year in the fourth
quarter of 2013 driven by an increase in revenues and margins.
Earnings per share remained at the low end of the company's
guided range of 57 cents to 62 cents per share. However, it
missed the Zacks Consensus Estimate of 58 cents by a penny, which
we believe was due to higher labor and interest expenses.
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Including impairment of assets and lease terminations of 4 cents,
GAAP earnings per share were 62 cents, up 55.0% year over year.
Cheesecake's revenues increased 2.2% year over year to $475.1
million driven by positive comps. However, it missed the Zacks
Consensus Estimate of $483.0 million by 1.6%.
Inside the Headline Numbers
Comps remained flat year over year at 0.9% and better than 0.8%
reported in the previous quarter. However, it was far below
management's guidance range of 1.5% to 2.5%. Comps were
negatively impacted by severe winter storms. Excluding the
weather effect, comps were up 1.6% year over year.
Comps increased 1.1% at the Cheesecake Factory restaurant concept
but declined 1.1% at the company's other concept, Grand Lux Cafe.
Cost of sales ratio improved 140 basis points (bps) to 24.4% due
to a mix shift between bakery and restaurant sales and continued
lower grocery costs. Labor expense ratio was up 30 bps due to
reduced efficiencies as a result of winter storms. Pre-opening
expenses were $4.9 million, up 2.1% year over year.
The company achieved its target of opening 9 company owned
restaurants during 2013, including three new restaurants and
three relocated restaurants. As of Dec 31, 2013, the company
operated 180 restaurants. Internationally, the company unveiled
one new The Cheesecake Factory restaurant in Jeddah, Kingdom of
Saudi Arabia during the quarter under a licensing agreement.
The company intends to open 10-12 company-owned restaurants in
2014. It plans to open 3 to 5 restaurants overseas in the Middle
East and Mexico under licensing agreements.
Full-Year 2013 Update
In full year 2013, Cheesecake's adjusted earnings per share were
$2.10, up 11.7% year over year and at the low end of management's
expected range of $2.10 to $2.13. However, it missed the Zacks
Consensus Estimate of $2.11 by a penny.
Revenues grew 3.8% to $1.88 billion. However, it missed the Zacks
Consensus Estimate of $1.89 billion by 0.69%. Comps were 1.0% and
at the lower end of the management's guidance. However, it was
lower than the year-ago comps of 1.9%.
Guidance for First Quarter 2014
Based on a flat to 1.0% range for comps, the company expects
earnings per share in the range of 48 cents to 50 cents in 2014,
marginally lower than the Zacks Consensus Estimate of 51 cents.
The comps guidance takes into account the impact of storms and
Easter in April this year compared with March in the year-ago
quarter. This will shift sales from the first quarter to the
Guidance for 2014
Based on comps range of 1.0% to 2.0%, the company maintained its
earnings guidance range of $2.29 to 2.41 per share for 2014, up
from 2013 levels. The Zacks Consensus Estimate of $2.38 falls
within the company's expected range.
In 2014, the company expects higher shrimp and salmon cost to be
largely offset by lower costs in other categories. Therefore, it
expects food costs to be lower in 2014. It expects inflation in
the range of 3.0% to 4.0%, better than the prior expectation of
4.0% to 5.0%.
The company intends to increase menu price by approximately 2.0%
The Cheesecake Factory missed the Zacks Consensus Estimate for
earnings and revenues. However, both the metrics were up year
over year. The company is suffering on the sales front due to the
impact of bad weather. Cheesecake's focus on international
expansion is quite encouraging.
However, continued underperformance of the Grand Lux Cafe and
food cost inflation, though expected to ease in 2014, remain
concerns. We believe that the company needs to adopt some sales
building measures to reinvigorate the brand. Cheesecake currently
carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the industry include
Buffalo Wild Wings Inc.
Carrols Restaurant Group, Inc.
Chipotle Mexican Grill, Inc.
). All these stocks carry a Zacks Rank #2 (Buy).