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Why Is Cheesecake Factory (CAKE) Up 8.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Cheesecake Factory (CAKE - Free Report) . Shares have added about 8.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cheesecake Factory due for a pullback? 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 catalysts.

Cheesecake Factory Q3 Earnings Lag Estimates, Fall Y/Y

The Cheesecake Factory reported third-quarter fiscal 2022 results, with earnings and revenues missing the Zacks Consensus Estimate. The top line rose year over year, while the bottom line declined from the prior-year quarter's figure.

Earnings & Revenue Discussion

In the quarter under review, the company reported an adjusted loss per share of 3 cents missing the Zacks Consensus Estimate of earnings of 28 cents. In the prior-year quarter, the company reported adjusted earnings per share (EPS) of 65 cents.
 
During the fiscal third quarter, total revenues of $784 million missed the Zacks Consensus Estimate of $799 million by 1.9%. The top line increased 3.9% on a year-over-year basis.

During the reported quarter, comps at Cheesecake Factory restaurants increased 1.1% year over year compared with a 41.1% increase reported in the prior-year quarter. Also, comps had increased 9.5% from 2019 levels. From the start of the fiscal third quarter to Oct 25, 2022, comps at Cheesecake Factory (across all operating models) increased approximately 2.8% year over year and 14% from fiscal 2019 levels.

Costs in Detail

Cost of sales, as a percentage of revenues, increased 270 basis points (bps) year over year to 25.2% in the fiscal third quarter. Labor expenses, as a percentage of total revenues, amounted to 37.4%, up 30 bps from the year-ago quarter’s levels. Other operating costs (as a percentage of total revenues) came in at 27.7%, up 100 bps from the prior-year quarter’s levels.

General and administrative (G&A) expenses accounted for 6.4% of revenues compared with 6.1% in the prior-year quarter. In the fiscal third quarter, pre-opening expenses accounted for 0.6% of revenues, up 20 bps year over year.

Balance Sheet

As of Sep 27, 2022, Cheesecake Factory’s cash and cash equivalents totaled $133.2 million compared with $194.9 million reported in the previous quarter. During the fiscal third quarter, long-term debt (net of issuance costs) came in at $467.5 million compared with $467 million as of Jun 28, 2022.

The company declared a quarterly cash dividend of 27 cents per share. The dividend will be payable Nov 28, 2022, to its shareholders of record as of Nov 15, 2022.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -19.72% due to these changes.

VGM Scores

At this time, Cheesecake Factory has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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.

Performance of an Industry Player

Cheesecake Factory is part of the Zacks Retail - Restaurants industry. Over the past month, McDonald's (MCD - Free Report) , a stock from the same industry, has gained 0.9%. The company reported its results for the quarter ended September 2022 more than a month ago.

McDonald's reported revenues of $5.87 billion in the last reported quarter, representing a year-over-year change of -5.3%. EPS of $2.68 for the same period compares with $2.76 a year ago.

McDonald's is expected to post earnings of $2.43 per share for the current quarter, representing a year-over-year change of +9%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.3%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for McDonald's. Also, the stock has a VGM Score of C.


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