California-based The Cheesecake Factory Incorporated (CAKE) is set to report second-quarter 2014 results on Jul 23, after the market closes.
In the last quarter, the company posted a 12.2% negative surprise, primarily due to higher expenses. Let’s see how things are shaping up for the upcoming announcement.
Factors to Consider this Quarter
Although Cheesecake Factory failed to beat the expectations last quarter as severe winter storms and a holiday shift hurt comps, it still managed to grow comps by 0.9%. The comps growth reflected the 16th straight quarter of positive comps and we believe that the trend will continue in the second quarter as well.
The fact that Cheesecake Factory did not compromise on the margins to achieve comps growth is commendable. Positive comps without value promotions prove that consumers favor this restaurant even when consumer spending slowed down. In fact, the company managed to grow revenues by 4% year over year in the prior quarter (despite the inclement weather and the sluggish economy), which we believe will continue in the upcoming quarter.
However, we remain aware of the rising beef prices, which might dent Cheesecake Factory’s margins in the upcoming quarter.
Earnings Whispers?
Our proven model does not conclusively show that Cheesecake Factory is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP for Cheesecake Factory is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 61 cents.
Zacks Rank: The Cheesecake Factory has a Zacks Rank #3 (Hold), which when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies in the restaurant sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Chipotle Mexican Grill, Inc. (CMG), with an Earnings ESP of +0.98% and a Zacks Rank #2 (Buy).
Domino's Pizza, Inc. (DPZ), with an Earnings ESP of +1.54% and a Zacks Rank #2.
Buffalo Wild Wings Inc. (BWLD), with an Earnings ESP of +5.04% and a Zacks Rank #3.
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