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Cheesecake Factory (CAKE) Q1 Earnings Top Estimates, Fall Y/Y

Zacks Equity Research
·4 min read

The Cheesecake Factory Incorporated CAKE reported preliminary first-quarter fiscal 2020 results, wherein both the top and the bottom lines beat the Zacks Consensus Estimate. Following the results, the company’s shares moved up 2.4% in after-hours trading session on May 5.

The company reported preliminary results on an adjusted basis, which do not include impairments of long-lived assets, goodwill and other intangible assets and the revaluation of contingent consideration associated with the acquisition of Fox Restaurant Concepts as well as corresponding tax effects as a result of the impact of COVID-19. The company has also delayed the filing of 10-Q as evaluation is in process. The aforementioned items are non-cash in nature and impact on reported results is likely to be material.

In the quarter under review, adjusted earnings came in at 4 cents per share, comparing favorably with the Zacks Consensus Estimate of a loss of 46 cents. However, the bottom line plummeted 93.5% from the prior-year number. This downside can be primarily attributed to higher operating and acquisition-related costs.  

Let’s take a closer look at the numbers.

The Cheesecake Factory Incorporated Price, Consensus and EPS Surprise


The Cheesecake Factory Incorporated Price, Consensus and EPS Surprise
The Cheesecake Factory Incorporated Price, Consensus and EPS Surprise

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

Detailed Revenue Discussion

Total revenues of $615.1 million in the reported quarter beat the Zacks Consensus Estimate of $614 million. Moreover, the top line improved 2.6% year over year. Notably, the company benefited from the acquisitions of North Italia and Fox Restaurant Concepts on Oct 2, 2019.

However, comps at Cheesecake Factory restaurants declined 12.9% against 1.3% growth recorded in the year-ago quarter.

Costs in Detail

Cost of sales, as a percentage of revenues, increased 20 basis points (bps) year over year to 22.9% in the first quarter. Meanwhile, labor expenses, as a percentage of total revenues, was 38.7%, up 250 bps from the year-ago quarter.

Other operating costs represented 27.3% of revenues, up 170 bps from the year-ago quarter. General and administrative (G&A) expenses accounted for 7.1% of revenues, up 60 bps from the prior-year quarter. In the first quarter, pre-opening expenses accounted for 0.5% of revenues, up 10 bps year over year.

Balance Sheet

As of Mar 31, 2020, Cheesecake Factory’s cash and cash equivalents totaled $81 million compared with $58.4 million as of Dec 31, 2019.

Moreover, on Apr 20, the company announced the closing of $200 million convertible preferred investment from affiliates of Roark Capital. As of Apr 30, 2020, the company’s cash balance totaled nearly $260 million.

Long-term debt totaled $380 million in the fiscal first quarter.

However, due to uncertainty revolving around the COVID-19 pandemic, the company has suspended its share repurchase activity as well as dividend payment program.

Developmental Details

During the fiscal first quarter, the company opened one North Italia and one Flower Child restaurant.

However, going forward, the company has suspended new unit developments until more clarity on the restaurant industry operating environment emerges.

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 Retail-Wholesale sector are Sprouts Farmers Market, Inc. SFM, Domino's Pizza, Inc. DPZ and Yum China Holdings, Inc. YUMC. Sprouts Farmers sports a Zacks Rank #1, while Domino's and Yum China carry a Zacks Rank #2 (Buy).

Sprouts Farmers has a three-five year earnings per share growth rate of 3.7%.

Domino's has a trailing four-quarter positive earnings surprise of 12.7%, on average. The company’s earnings beat the Zacks Consensus Estimate in the last four quarters.

Earnings in 2021 for Yum China are expected to surge 79.2%.

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