It has been about a month since the last earnings report for Cheesecake Factory (CAKE). Shares have lost about 10.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cheesecake Factory due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Cheesecake Factory Q3 Earnings Lag Estimates, Rise Y/Y
The Cheesecake Factory reported third-quarter fiscal 2021 results, with earnings and revenues missing the Zacks Consensus Estimate. However, the top and the bottom line increased on a year-over-year basis.
Earnings & Revenue Discussion
In the quarter under review, adjusted earnings per share (EPS) came in at 65 cents missing the Zacks Consensus Estimate of 70 cents. In the prior-year quarter, the company had reported an adjusted loss of 33 cents per share. The upside was primarily driven by improvements in labor and other operating expenses.
During the fiscal third quarter, total revenues of $754.5 million missed the Zacks Consensus Estimate of $760 million by 0.8%. The top line surged 45.7% on a year-over-year basis. The upside can be primarily attributed to solid off-premise sales growth. Quarter-to-date (through Nov 2), the off-premise model contributed 28% to total sales. Off-premise average weekly sales have doubled compared with fiscal 2019 levels.
During the reported quarter, comps at Cheesecake Factory restaurants increased 41.1% year over year. In the prior-year quarter, comps had fallen 23.3% year over year. Nevertheless, the metric is up 8.3% compared with 2019 levels.
Costs in Detail
Cost of sales, as a percentage of revenues, declined 30 basis points (bps) year over year to 22.5% in the fiscal third quarter. Labor expenses, as a percentage of total revenues, was 37.1%, down 160 bps from the year-ago quarter’s levels. Other operating costs (as a percentage of total revenues) came in at 26.7%, down 400 bps from the prior-year quarter’s levels.
General and administrative (G&A) expenses accounted for 6.1% of revenues compared with 7.3% in the prior-year quarter. In the fiscal third quarter, pre-opening expenses accounted for 0.4% of revenues, down 10 bps year over year.
Balance Sheet
As of Sep 28, 2021, Cheesecake Factory’s cash and cash equivalents totaled $131 million compared with $154.1 million as of Dec 29, 2020. During the fiscal third quarter, long-term debt (net of issuance costs) came in at $465.5 million compared with $280 million as of Dec 29, 2020.
Developmental Details
During the fiscal third quarter, the company opened four new restaurants including North Italia and Flower Child in Phoenix, North Italia in Nashville and Blanco in Chicago. It also opened a Cheesecake Factory restaurant in Shanghai under a licensing agreement. Subsequent to quarter-end, the company opened the North Italia store in the Orlando area, Blanco and Culinary Dropout in Denver and one Cheesecake Factory restaurant in Huntsville, AL. During the quarter, the company achieved its development objective of opening 14 new restaurants (across its concepts) in fiscal 2021.
Other Business Updates
Since the start of fiscal fourth quarter to Nov 2, 2021, comps at Cheesecake Factory (across all operating models) increased approximately 20% year over year. Comps also increased 10.5% from 2019 levels. Solid off-premise sales were a primary contributor to the company’s performance.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -14.86% due to these changes.
VGM Scores
Currently, Cheesecake Factory has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cheesecake Factory has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
