Based in Calabasas Hills, California, Cheesecake Factory Inc. (CAKE) reported earnings of 42 cents a share in the second quarter of fiscal 2011, in line with the Zacks Consensus Estimate. The earnings also increased 7.7% from the prior-year adjusted earnings of 39 cents a share.
The better-than-expected results were driven by comparable store sales growth arising from higher traffic.
Cheesecake’s revenues spiked 2.8% year over year to $430.7 million, but were below the Zacks Consensus Estimate of $435.0 million. The upside in the top line was attributable to higher comps growth. The company is also focusing on sales-driven initiatives like new menu offerings, value-added services and improved food quality to attract customers.
Inside the Headline Numbers
Comparable restaurant sales rose 2.1% in the reported quarter, reflecting positive growth for six consecutive quarters as the reviving economy is fueling higher consumer demand. Comparable store sales jumped 2.3% at Cheesecake Factory, but remained flat at Grand Lux Cafe.
Operating margin in the second quarter contracted 70 basis points (bps) year over year to 8.2%, as cost of sales, as a percentage of revenue, jumped 100 bps due to higher food costs, partially offset by a 10-bp dip in labor, 10-bp fall in general and administrative expenses and 20-bp plunge in depreciation and amortization expenses.
Financial Position
Cheesecake ended the quarter with a cash balance of $58.9 million. The company has no debt on its balance sheet. Shareholders' equity at the end of the reported quarter was $556.7 million.
The company repurchased 1.5 million shares in the second quarter and raised its share repurchase authorization from $100 million to a range of $125 million-$150 million in 2011.
Outlook
Cheesecake expects to achieve mid-teens earnings per share growth annually over the next five years, driven by positive comps and unit growth.
The company currently operates 164 restaurants and plans to open seven new restaurants in 2011.
Our Take
We expect estimates to move up in the coming days, based on better-than-expected results and focus on enhancing shareholder value. However, margins will continue to remain under pressure due to food cost inflation. The Zacks Consensus Estimates for 2011 and 2012 are pegged at $1.66 and $1.87, respectively.
One of Cheesecake’s primary competitors, Chipotle Mexican Grill Inc. (CMG) reported second quarter 2011 earnings of $1.59 per share, missing the Zacks Consensus Estimate of $1.68 due to higher food costs.
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