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Cheesecake Factory Beats on Earnings; Ups Dividend & View - Analyst Blog

The Cheesecake Factory Inc.CAKE posted mixed second-quarter 2015 results wherein earnings beat the Zacks Consensus Estimate, but revenues marginally missed the same. Share price of the company rose 4.3% in response. Further, the company increased its 2015 earnings guidance for the third consecutive quarter and also increased its quarterly dividend by 21%. These further contributed to the upside in shares.

The company's adjusted earnings of 69 cents per share beat the Zacks Consensus of 62 cents by 11.3%. Also, earnings were higher than the company's guidance of 59 cents to 62 cents per share and rose 17% year over year on the back of increased revenues.

The Cheesecake Factory Inc. - Earnings Surprise | FindTheBest

The restaurateurs' revenues increased 7% year over year to $529.1 million mainly due to comps growth at Cheesecake Factory restaurants. However, it marginally missed the Zacks Consensus Estimate of $531 million.

Inside the Headline Numbers

Comps at Cheesecake Factory restaurants increased 2.8%, better than 1.5% growth in the year-ago quarter and were higher than management's expectation of 1.5% to 2.5% increase. However, it compared unfavourably with prior quarter comps growth of 4.2%.

Total costs and expenses increased 5.7% to $479.3 million as cost of sales and labor expenses and general and administrative expenses rose.

Cost of sales ratio, however, decreased 40 basis points (bps) to 23.9%. This was primarily attributable to lower seafood and grocery costs, partially offset by an increase in meat and poultry cost. Labor expense ratio went down 60 bps to 31.8%, as lower group medical expense was partially offset by higher wage costs.

G&A expenses were 6.7% of revenues in the second quarter, up 80 bps from the prior-year quarter, owing to an accrual for the settlement of a legal claim and as expected, a higher corporate bonus accrual. Pre-opening expenses were $4.1 million, up 58% year over year.

2015 Earnings Guidance Up

Cheesecake Factory increased its earnings guidance for 2015 for the third consecutive quarter. It expects earnings in the range of $2.29 to $2.35, up from the prior guidance of $2.18 to $2.27. This marks a year-over-year increase of 16% to 19%. The Zacks Consensus Estimate is currently pegged at $2.26 per share, which falls within the guided range.

The company now expects comps growth of 2.5% compared to the previous guidance of 1.5% to 2.5%. This implies comps growth in the range of 1% to 2% for the fourth quarter.

The company expects food cost inflation in the range of flat to up 1% in 2015 owing to higher poultry costs as a result of avian flu, partially offset by a decline in cheese costs. It expects wage rate inflation in the range of 3% and 4% in 2015, up 1% from the previous expectation. Owing to wage rate headwinds, the company is considering 50 bps of price increase as part of its upcoming menu change.

Third-Quarter 2015 Guidance Meets Expectation

For the third quarter, Cheesecake Factory expects earnings per share between 53 cents and 56 cents. The Zacks Consensus Estimate is currently pegged at 54 cents. Comps are expected in the range of 1.5% to 2.5% at Cheesecake Factory restaurants. The company expects first half sales momentum to continue into the second half as well.

The company expects general and administrative expenses to be up 70 to 90 bps year over year in the third quarter.

Cheesecake Factory currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Other well ranked stocks in the same industry include Carrols Restaurant Group, Inc. TAST , Dave & Buster's Entertainment, Inc. PLAY and Diversified Restaurant Holdings, Inc. BAGR . All these stocks sport a Zacks Rank #1 (Strong Buy).

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CHEESECAKE FACT (CAKE): Free Stock Analysis Report

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


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

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