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Cheesecake Factory (CAKE) Q4 Earnings Lag Estimates, Fall Y/Y

The Cheesecake Factory Incorporated CAKE reported fourth-quarter fiscal 2019 results wherein both earnings and revenues missed the Zacks Consensus Estimate. Following lower-than-expected results, shares of the company declined 3.4% in after-hours trading on Feb 19.

In the quarter under review, adjusted earnings came in at 58 cents per share, lagging the Zacks Consensus Estimate of 61 cents. Moreover, the bottom line dipped 7.9% from the prior-year number. This downside was primarily attributed to  higher operating and acquisition-related costs.  

Let’s take a closer look at the numbers.

Detailed Revenue Discussion

Total revenues of $694 million in the reported quarter missed the Zacks Consensus Estimate of $704 million. However, the top line improved 18.6% year over year on the back of increased comparable sales.

Comps at Cheesecake Factory restaurants slipped to 0.6% growth from the 1.9% rise in the year-ago quarter.

The Cheesecake Factory Incorporated Price, Consensus and EPS Surprise

The Cheesecake Factory Incorporated price-consensus-eps-surprise-chart | The Cheesecake Factory Incorporated Quote

Costs in Detail

Cost of sales ratio decreased 20 bps year over year to 22.8% in the fourth quarter. Meanwhile, the labor expense ratio was 36.2%, up 40 bps from the year-ago quarter.

Other operating costs represented 26% of revenues, up 200 bps from the year-ago quarter. General and administrative (G&A) expenses accounted for 6.8% of revenues, up 50 bps from the prior-year quarter. However, in the fourth quarter, pre-opening expenses were flat at 0.9% year over year.

Balance Sheet

As of Dec 31, 2019, Cheesecake Factory’s cash and cash equivalents totaled $65.4 million compared with $26.6 million as of Jan 1, 2019.

In the fiscal fourth quarter, the company repurchased approximately 10,000 shares of its common stock for $0.4 million. In 2019, Cheesecake Factory bought back 1.1 million shares of common stock for $51 million.

The company’s board of directors declared a quarterly cash dividend of 36 cents per share of the common stock. The new dividend is payable Mar 20, 2020 to its shareholders of record at the close of business on Mar 9, 2020.

Developmental Details

In fiscal 2020, Cheesecake Factory anticipates opening 20 new restaurants including six Cheesecake Factory locations, six North Italia restaurants and eight restaurants within the FRC subsidiary. It also expects to launch four Cheesecake Factory restaurants internationally under licensing agreements

2019 Highlights

Total revenues of $ 2,482.7 million were up 6.4% year over year.

Adjusted earnings per share (EPS) for the year ended Dec 31, 2019 was reported at $2.61 compared with $2.51 as on Jan 1, 2019.

In fiscal 2019, Comps at Cheesecake Factory restaurants slid to 0.8% rise from growth of 1.7% a year ago.

Q1 Outlook

For the first quarter, adjusted EPS is estimated to be 69-74 cents based on anticipated comps growth of 1-2% at Cheesecake Factory restaurants. Total revenues for The Cheesecake Factory restaurants are estimated in the range of $715-$720 million.

Fiscal 2020 Guidance

For the fiscal 2020, Cheesecake Factory expects earnings of $2.70-$2.86 per share. Its mid-point of $2.78 is above the current Zacks Consensus Estimate of $2.73. Meanwhile, the company expects comps to grow in the range of 1-2%. Total revenues for fiscal 2020 are estimated at $2.9 billion.

Zacks Rank & Stocks to Consider

Cheesecake Factory carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space are Brinker International, Inc. EAT, Good Times Restaurants Inc. GTIM and Chipotle Mexican Grill, Inc. CMG, all carrying a Zacks Rank #2 (Buy).

Current-year earnings for Brinker International and Good Times Restaurants are expected to rise 10.2% and 10.5%, respectively.

Chipotle Mexican Grill has an expected three-five year EPS growth rate of 19.3%.

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