Based in Calabasas Hills, California, Cheesecake Factory Inc. (CAKE) reported earnings of 34 cents a share in the first quarter of fiscal 2011, which surpassed the Zacks Consensus Estimate by a penny. The earnings also inched up 9.7% year over year from the prior-year earnings of 31 cents a share.
The better-than-expected results were driven by comparable-store sales growth due to higher traffic.
Cheesecake’s top line showed a growth of 3.3% year over year to $ 418.8 million. The upside in revenue was perked up by higher comparable sales 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 1.6% in the reported quarter and have been positive for five consecutive quarters as the reviving economy is feeding the increase in consumer demand. However, bad weather conditions have impacted same restaurant sales growth by 80 basis points. By concept, comparable store sales jumped 2.1% at Cheesecake Factory, but dropped 3.8% at Grand Lux Cafe.
During the quarter, cost of sales as a percentage of revenue jumped 70 basis points (bps) to 25% due to higher food costs and other operating cost rose 20 bps to 24.7%.
Operating margin in the first quarter was flat year over year at 7.1%, as general and administrative expenses remained flat at 5.8% and depreciation and amortization cost fell 30 bps to 4.2%.
Financial Position
Cheesecake ended the year with a cash balance of $ 76.2 million. It does not have debt on its balance sheet. Shareholders' equity at the end of the reported quarter was $ 568.2 million.
The company repurchased 1.7 million shares in the first quarter and targets a share repurchase worth $ 100 million in 2011.
Outlook
Cheesecake expects to achieve mid-teens earnings per share growth annually over the next five years, driven by positive comparable sales and unit growth.
The company currently operates 164 restaurants and has opened one new restaurant in the first quarter of 2011. Cheesecake plans to open six to nine restaurants in 2011.
Our Take
In spite of inclement weather conditions and menu price increase, the company experienced an upside of 1% in average check and positive traffic. This implies that the economy is staging a recovery and guests are ready to spend. We expect estimates to move up in the coming days, based on better-than-expected results. However, margins will continue to remain under pressure due to food cost inflation.
One of Cheesecake’s primary competitors, Chipotle Mexican Grill Inc. (CMG) reported first quarter 2011 earnings of $ 1.46, which outpaced the Zacks Consensus Estimate of $ 1.43 on the heels of a robust top-line.
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