CAKE Beats by a Penny

California-based Cheesecake Factory Inc. ( CAKE - Analyst Report ) reported earnings of 37 cents a share in the first quarter of fiscal 2012, outpacing the Zacks Consensus Estimate by a penny and the year-ago earnings of 34 cents.

Cheesecake Factory’s revenues spiked 4.1% year over year to $435.8 million. The upside in the top line was attributable to a rise in comps.

Inside the Headline Numbers

Comparable restaurant sales grew 2.4% in the reported quarter, reflecting growth for the ninth consecutive quarter given the higher consumer demand arising from the reviving economy. Comparable store sales increased 2.6% at Cheesecake Factory and 0.3% at Grand Lux Cafe.

Operating margin in the first quarter contracted 20 basis points (bps) year over year to 6.9%. Cost of sales, as a percentage of revenue, declined 30 bps due to favorable dairy and produce costs and other operating costs and expenses fell 40 bps.

Labor expenses and depreciation and amortization expenses were flat year over year. These positives were partially offset by an 80-bp rise in general and administrative expenses and 10-bp increase in pre-opening costs.

Financial Position

Cheesecake Factory ended the quarter with cash and cash equivalents of $41.3 million. Shareholders' equity was $536.9 million.

The company repurchased 1.4 million shares in the first quarter at a cost of approximately $40.9 million.

Guidance

For the second quarter of 2012, diluted earnings per share are expected to range between 47 cents and 49 cents, while comparable sales are projected to remain between 1.5% and 2.5%.

For 2012, management expects comps to remain in the range of 1.5% to 2.5% while the earnings per share estimate was increased to the range of $1.83 to $1.91 from $1.80 to $1.90. The company expects to buy back approximately $100 million shares in 2012.

The company currently operates 171 restaurants, including the one that was opened during the first quarter. Moreover, the company expects to unveil three restaurants in the Middle East in late summer this year under a license agreement.

Our Take

We expect estimates to move up in the coming days, given the focus on enhancing shareholder value, containing costs, moderating food cost inflation, developing new restaurants, international expansion and earnings per share growth. However, margins can face some tension from higher minimum wage costs and higher payroll taxes. In addition, the corporate tax rate will be somewhat higher this year.

Cheesecake Factory currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.