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We expect restaurant company Cheesecake Factory Inc. (CAKE - Analyst Report) to beat earnings expectations when it reports first-quarter 2013 results on Apr 24. In the trailing four quarters, the restaurateur posted an average earnings surprise of 2.37%. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Cheesecake has the right combination of two key ingredients to beat earnings.

Positive Zacks ESP:The Earnings ESP (Read: Zacks Earnings ESP: A Better Method) for Cheesecake is +2.38%. This indicates the difference between the Most Accurate estimate, which stands at 43 cents per share and the Zacks Consensus Estimate of 42 cents per share. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3 (Hold):The combination of  Cheesecake’s Zacks Rank #3 (Hold) when combined with a positive Earnings ESP of +2.38% makes us confident of a positive earnings surprise in the soon-to-be reported quarter.

Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.

Drivers of Better-than-Expected Earnings

We expect Cheesecake to beat earnings in first-quarter 2013 gaining from strong operational performance of the three new restaurants in the Middle East, which have been registering higher-than-expected volume growth and are likely to contribute nicely to 2013 margins.

Relatively benign food costs, planned efficiency gain and a benefit from bakery mix shift will likely augur well for cost of sales, which in turn should facilitate margin expansion.

Further, the company boasts sufficient free cash flow and expects to use most of it for dividend payments and share repurchases. This share repurchase activity also might help earnings per share in the quarter.

Other Stocks to Consider

Cheesecake is not the only stock expected to post impressive results this earnings season. We also observe that there are other companies in the leisure sector, which are likely to beat earnings.

Hyatt Hotels Corporation (H - Snapshot Report) Earnings ESP of +37.50% and a Zacks Rank #3 (Hold).

Marriott International Inc.(MAR - Analyst Report) Earnings ESP of +4.88% and a Zacks Rank #3 (Hold).

Wynn Resorts Ltd. (WYNN - Analyst Report) Earnings ESP of +3.87% and a Zacks Rank #3 (Hold).

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