Cheesecake Factory (CAKE) Down on Q3 Earnings & Revenue Miss
The Cheesecake Factory Incorporated CAKE reported lower-than-expected third-quarter fiscal 2023 results thanks to the soft sales environment.
Shares of Cheesecake Factory lost 1.2% in the after-hour trading session on Nov 1 following the release.
Nonetheless, the company’s top and bottom lines improved on a year-over-year basis courtesy of higher consumer demand, new restaurant openings and operational efficiency.
Earnings & Revenue Discussion
In the quarter under review, the company reported adjusted earnings per share (EPS) of 39 cents, missing the Zacks Consensus Estimate of 42 cents by 7.1%. In the year-ago period, the company reported a loss of 3 cents per share.
Total revenues of $830.2 million missed the consensus estimate of $842 million by 1.4%. However, the top line increased 5.9% on a year-over-year basis.
The Cheesecake Factory Incorporated Price, Consensus and EPS Surprise
The Cheesecake Factory Incorporated price-consensus-eps-surprise-chart | The Cheesecake Factory Incorporated Quote
Solid Comps Growth Drives Q3 Results
In the reported quarter, comps at Cheesecake Factory restaurants rose 2.4% year over year (lower than our expectation of 3.4% growth) compared with 1.1% in the prior-year quarter. Comps grew 12.6% from 2019 levels. Notably, the quarterly comps exceeded the Knapp-Track and Black Box casual dining indices for both periods.
For the 39-week ended Oct 3, 2023, comps at Cheesecake Factory restaurants increased 3.2% year over year compared with 8.2% a year ago.
In the fiscal third quarter, The Cheesecake Factory's off-premise sales accounted for 21% of their total sales, slightly below the levels observed in the second quarter. This aligns with historical trends, where the summer months tend to exhibit a lower proportion of off-premise sales, suggesting the possibility of a return to typical seasonal patterns.
North Italia comps gained 8% year over year compared with 10% in the year-ago quarter. The metric increased 28% compared with 2019 levels. Our model suggested the metric to rise 6.9% year over year.
Costs in Detail
The cost of food and beverage, as a percentage of revenues, increased 30 basis points (bps) year over year to 23.5% in the fiscal third quarter. Our model predicted the metric to be 24.2% of revenues in the quarter.
Labor expenses, as a percentage of total revenues, amounted to 36.3%, down 110 bps from the year-ago quarter’s levels. We expected the metric to be 36.1% of revenues in the quarter.
Other operating costs, as a percentage of total revenues, were 27.6%, down 10 bps from the prior-year quarter’s level. In the quarter, we anticipated the metric to be 26.3% of revenues.
General and administrative expenses accounted for 6.5% of revenues, up 10 bps year over year. Our model predicted the metric to be 6.7% of revenues in the fiscal third quarter.
In the fiscal third quarter, pre-opening expenses accounted for 0.8% of revenues, up 20 bps year over year.
Balance Sheet
As of Oct 3, Cheesecake Factory’s cash and cash equivalents totaled $64 million compared with $114.8 million at the fiscal 2022-end. Long-term debt (net of issuance costs) was $469.5 million compared with the fiscal 2022-end value of $468 million. As of Oct 3, the company had a total available liquidity of $300 million.
Management declared a quarterly cash dividend of 27 cents per share. The dividend will be payable on Nov 28, to shareholders of record as of Nov 15. In the fiscal third quarter, CAKE also repurchased 453,400 shares for $14.6 million.
Store Developments
In the quarter under review, Cheesecake Factory opened two new restaurants. Management now expects to open 16 restaurants in fiscal 2023, along with two new international restaurants under licensing agreements.
Zacks Rank
Cheesecake Factory currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A Few Recent Retail-Wholesale Releases
YUM! Brands, Inc. YUM reported mixed third-quarter 2023 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same.
YUM! Brands’ third-quarter 2023 adjusted EPS reached $1.44, increasing 32% from the prior year. Quarterly revenues of $1,708 million improved 4% year over year. The company benefited from robust same-store sales and unit growth.
McDonald's Corporation MCD reported third-quarter 2023 results, with earnings and revenues beating the Zacks Consensus Estimate. Both metrics surpassed the consensus estimate for the fifth straight quarter and increased on a year-over-year basis.
In the quarter under discussion, global comps of McDonald's expanded 8.8% compared with 11.7% in the prior-year quarter.
Yum China Holdings, Inc. YUMC reported third-quarter 2023 results, with earnings and revenues missing the Zacks Consensus Estimate after beating in the preceding two quarters. Consumer demand weakened in late September through October, negatively impacting the company's quarterly results.
Total system sales of Yum China grew 15% year over year. System sales at KFC and Pizza Hut jumped 15% and 13% (excluding foreign currency translation), respectively.
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