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Why Is Cheesecake Factory (CAKE) Down 6.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Cheesecake Factory (CAKE - Free Report) . Shares have lost about 6.2% 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 Q2 Earnings Beat Estimates

The Cheesecake Factory reported second-quarter fiscal 2021 results, with earnings and revenues beating the Zacks Consensus Estimate as well as increasing on a year-over-year basis. The company benefitted from lifting of indoor dining restrictions and solid off-premise sales.

Earnings & Revenue Discussion

In the quarter under review, adjusted earnings per share came in at 80 cents that beat the Zacks Consensus Estimate of 75 cents by 6.7%. In the prior-year quarter, the company had reported adjusted loss of 90 cents per share. The upside was primarily driven by improvements in labor and other operating expenses.

During fiscal second quarter, total revenues of $769 million surpassed the Zacks Consensus Estimate of $748 million by 2.9%. Also, the top line surged 159.9% on a year-over-year basis. The upside can be primarily attributed to the easing of COVID-19 restrictions and solid off-premise sales. During the quarter, off-premise model contributed 27% to total sales. Moreover, off-premise average weekly sales have doubled compared with fiscal 2019 levels.

During the reported quarter, comps at Cheesecake Factory restaurants increased 150% year over year. In the prior-year quarter, the company’s comps had fallen 56.9% year over year. Nonetheless, comps are up 7.8% compared with 2019 levels.

Costs in Detail

Cost of sales, as a percentage of revenues, declined 240 basis points (bps) year over year to 22% in the fiscal second quarter. Labor expenses, as a percentage of total revenues, was 35.7%, down 580 bps from the year-ago quarter’s levels. Other operating costs (as a percentage of total revenues) came in at 25.9%, down 1520 bps from the prior-year quarter’s levels.

General and administrative (G&A) expenses accounted for 6.3% of revenues compared with 12.1% in the prior-year quarter. In fiscal second quarter, pre-opening expenses accounted for 0.4% of revenues, down 30 bps year over year.

Balance Sheet

As of Jun 29, 2021, Cheesecake Factory’s cash and cash equivalents totaled $161.8 million compared with $154.1 million as of Dec 29, 2020. During fiscal second quarter, long-term debt (net of issuance costs) came in at $465 million compared with $280 million as of Dec 29, 2020.

Developmental Details

As of Jun 29, all of company’s restaurants are operating with no indoor dining restrictions.

During fiscal second quarter, the company opened two North Italia restaurants in Miami and San Antonio along with a Flower Child store in Atlanta. It also opened a one Cheesecake Factory restaurant in Shanghai under a licensing agreement. Subsequent to quarter-end, the company opened its second North Italia store in the Nashville area. Nonetheless, the company is on track to achieve its development plan to open as many as 14 new restaurants in 2021.

Other Business Updates

Since the start of fiscal third quarter to Jul 26, 2021, comps at Cheesecake Factory (across all operating models) increased approximately 61% year over year. Moreover, comps increased 10% from 2019 levels. Notably, easing of pandemic-led restrictions coupled with solid off-premise sales contribution, clearly benefitted the company.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 11.49% due to these changes.

VGM Scores

At this time, Cheesecake Factory has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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