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Cheesecake Factory (CAKE) Q2 Earnings Top Estimates, Fall Y/Y

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The Cheesecake Factory Incorporated (CAKE - Free Report) reported mixed second-quarter fiscal 2020 results, wherein earnings beat the Zacks Consensus Estimate but revenues lagged the same. However, both the metrics declined year over year. Following the results, the company’s shares fell 5.2% in after-hour trading on Jul 29.

In the quarter under review, adjusted loss per share came in at 87 cents, narrower than the Zacks Consensus Estimate of a loss of $1.07. In the prior-year quarter, the company had reported adjusted earnings of 82 cents per share. The downside can be primarily attributed to rise in labor and other operating expenses.

Let’s take a closer look at the numbers.

Detailed Revenue Discussion

During the fiscal second quarter, total revenues of $295.9 million missed the Zacks Consensus Estimate of $307.3 million by 3.7%. Moreover, the top line declined 50.9% on a year-over-year basis. Notably, the decline can be primarily attributed to the coronavirus pandemic. During the reported quarter, comps at Cheesecake Factory restaurants declined 56.9%.

Costs in Detail

Cost of sales, as a percentage of revenues, increased 210 basis points (bps) year over year to 24.4% in the fiscal second quarter. Meanwhile, labor expenses, as a percentage of total revenues, was 41.5%, up 530 bps from the year-ago quarter.

Other operating costs represented 41.1% of revenues, compared with 24.7% in the prior-year quarter. General and administrative (G&A) expenses accounted for 12.1% of revenues, up 590 bps from the prior-year quarter. In the fiscal second quarter, pre-opening expenses accounted for 0.7% of revenues, up 30 bps year over year.

Balance Sheet

As of Jun 30, 2020, Cheesecake Factory’s cash and cash equivalents totaled $250.2 million compared with $58.4 million as of Dec 31, 2019.

During the fiscal second quarter, the company issued 3,694 preferred shares to meet a payment-in-kind dividend of $18.47 per share.

Long-term debt totaled $376 million in the fiscal second quarter, compared with $290 million as on Dec 31, 2019.

Developmental Details

As of Jul 29, the company had reopened indoor dining rooms with limited capacity across 71% of its restaurants (which includes 146 Cheesecake Factory locations).

As per the dining restriction mandates in California, Florida and New Mexico, approximately 16% of the company’s restaurants (which includes 36 Cheesecake Factory locations) are operating with reopened patios and social-distancing protocols.

Notably, 22 Cheesecake Factory locations are currently operating in an off-premise only model, while 16 locations across the company’s concepts (including one Cheesecake Factory restaurant) are closed.

In terms of restaurant openings, no new developments were made during the fiscal second quarter. However, with eight locations under development, operating conditions are being closely monitored for carrying out new unit openings in the respective markets.

Other Business Updates

With indoor dining rooms reopened, Cheesecake Factory recaptured nearly 80% of prior-year sales levels (on average quarter-to-date) on the back of its strong off-premise sales. Currently, weekly off-premise sales are approximately $4.2 million per unit (on average) on an annualized basis.

However, since the start of the fiscal third quarter to Jul 26, comps at Cheesecake Factory (across all operating models) declined approximately 32%.

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 same space include Dine Brands Global, Inc. (DIN - Free Report) , Domino's Pizza, Inc. (DPZ - Free Report) and Yum China Holdings, Inc. (YUMC - Free Report) , each sporting a Zacks Rank #1.

Earnings in 2021 for Dine Brands are expected to surge 206.6%.

Domino's has a trailing four-quarter earnings surprise of 18.6%, on average.

Yum China has a three-five year earnings per share growth rate of 9.5%.

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