Cheesecake Stays Neutral - Analyst Blog


Despite strong third quarter 2013 results posted on Oct 23, 2013, we reaffirmed our Neutral recommendation on The Cheesecake Factory Inc. ( CAKE ) based on the cautious outlook for 2014.

Why the Reiteration?

The top line during the quarter marginally surpassed the Zacks Consensus Estimate and was up 3.5% year over year driven by rising comps. Earnings also surpassed our expectation with a year-over-year increase of 6.1%. Moreover, earnings and comps were within the company's guided range.

Cheesecake is one of the most recognized upscale casual restaurants that tap all dining preferences from lunch and dinner day parts to the mid-afternoon and late-night day part. The company is well positioned to sustain its same-stores sales growth driven by improved guest traffic. Moreover, the company's pricing actions, introduction of a new menu and the resurgence of high-end consumers are encouraging.

In the domestic market, management is focusing on formats of different sizes and scales to cater to local demand. Its smaller units are generating better-than-expected returns, encouraging the company to increase its focus on smaller sites to spur return on investment.

The company is also expanding its footprint internationally, either through licensing agreements or by opening company-owned restaurants. The company has restaurants under licensing agreements in the Middle East that have been registering higher-than-expected volume growth. Moreover, Cheesecake has regularly been returning wealth to shareholders via dividends and share repurchases.

In spite of the positives, continued underperformance at the Grand Lux Café brand, higher food cost outlook for 2014 and regular guidance cuts remain concerns. Despite strong results, the company tightened its 2013 earnings per share guidance to the range of $2.10-$2.13 from $2.10-$2.15 expected earlier, anticipating lower external bakery sales. During 2014, the company expects earnings to be negatively impacted by higher food costs. It expects cost inflation in the range of 4.0% to 5.0% in 2014 due to the rising cost of shrimp and salmon.

Despite the strong results, the estimates for 2014 have moved down over the last 60 days. The Zacks Consensus Estimate for 2014 has declined 2.5% to $2.38 over the same time frame due to the company's cautious guidance.

Other Stocks to Consider

The company presently has a short-term Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Buffalo Wild Wings Inc. ( BWLD ), Burger King Worldwide, Inc. ( BKW ) and Cracker Barrel Old Country Store, Inc. ( CBRL ). All these stocks carry a Zacks Rank #2 (Buy).

BURGER KING WWD (BKW): Free Stock Analysis Report

BUFFALO WLD WNG (BWLD): Free Stock Analysis Report

CHEESECAKE FACT (CAKE): Free Stock Analysis Report

CRACKER BARREL (CBRL): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BKW , BWLD , CAKE , CBRL

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