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What's in Store for Cheesecake Factory's (CAKE) Earnings?

The Cheesecake Factory IncorporatedCAKE is set to report third-quarter 2015 results on Oct 26 after the market closes. Last quarter, the company posted a positive earnings surprise of 11.29%.

The company's earnings have surpassed the Zacks Consensus Estimate in two of the trailing four quarters.

Let's see how things are shaping up for the upcoming announcement.

Factors at Play

Cheesecake Factory's comps increased 3.5% in the first half of 2015, comparing favorably with 1.5% improvement a year ago. The improved comps reflect average check growth. In fact, Cheesecake Factory has been reporting positive comps since the beginning of 2013 and we expect the trend to continue in the third quarter as well. Further, management's efforts to reduce waiting time by improving cooking and training methods should increase sales during peak hours.

Cheesecake Factory has been expanding in key emerging markets which should, in our view, translate into revenue growth in the to-be-reported quarter. In fact, the restaurants opened over the past three years have exceeded the performance of the existing base of restaurants.

For the third quarter, management expects earnings per share between 53 cents and 56 cents, based on an assumed range of comparable sales of within 1.5% to 2.5%. This compares favorably with earnings of 48 cents reported in the year-ago quarter. The Zacks Consensus Estimate is pegged at the higher end of the company's guidance at 56 cents.

However, high food costs along with increased labor expenses continue to hurt the restaurateur's margins in the third quarter. Moreover, with the company striving to expand its presence worldwide, pre-opening expenses would add to the costs. Further, the Grand Lux Café has been posting soft comps of late due to sluggish traffic, and we expect the trend to continue in the to-be reported quarter.

Earnings Whispers

Our proven model does not conclusively show that The Cheesecake Factory is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP : Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 56 cents. Hence, the difference is 0.00%.

Zacks Rank : The Cheesecake Factory's Zacks Rank #3 when combined with 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are a few companies in the restaurant industry which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Wingstop Inc. WING , with an Earnings ESP of +11.11% and a Zacks Rank #2.

Popeyes Louisiana Kitchen, Inc. PLKI , with an Earnings ESP of +2.27% and a Zacks Rank #2.

Noodles & Company NDLS , with an Earnings ESP of +14.29% and a Zacks Rank #3.

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CHEESECAKE FACT (CAKE): Free Stock Analysis Report

NOODLES & CO (NDLS): Free Stock Analysis Report

WINGSTOP INC (WING): Free Stock Analysis Report

POPEYES LA KTCH (PLKI): 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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