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Cheesecake Factory Beats Q4 Earnings, Misses Revenues

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The Cheesecake Factory Inc. (CAKE - Free Report) posted mixed fourth-quarter 2015 results wherein earnings beat the Zacks Consensus Estimate, but revenues missed the same.

Earnings and Revenue Discussion
 
The company's adjusted earnings of 54 cents per share beat the Zacks Consensus Estimate of 52 cents by 3.85% and increased 12.5% year over year on the back of increased comps.

The Cheesecake Factory Inc. (CAKE - Free Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Sales of $527 million, on the other hand, missed the Zacks Consensus Estimate of $529.0 million by 0.4% but up 5.4% year over year.

Inside the Headline Numbers

Comps at Cheesecake Factory restaurants increased 1.1%, lower than 2.2% growth last quarter and 1.4% rise in the year-ago period. Comps were hurt by 1.9% decline in traffic, partly offset by menu price increase of 2.5% and positive mix of 0.5%.

Cost of sales ratio decreased 150 basis points (bps) year over year to 23.8%. This was primarily attributable to lower seafood and dairy costs plus softer-than-predicted poultry costs, slightly offset by higher costs of meat. Labor expense ratio was 32.8%, up 30 bps year over year due to high wage rates.

General and administrative expenses were 6.8% of revenues in the fourth quarter, up 100 bps from the prior-year quarter, owing to higher corporate bonus accrual. Pre-opening expenses were $7.1 million, up 29% year over year.

2015 Results
 
Adjusted earnings per share were $2.37 in 2015, up 20.3% year over year.

Sales were $2.1 billion, up 6.3% from 2014.

First-Quarter Outlook

For the first quarter, Cheesecake Factory expects earnings per share between 59 cents and 62 cents. The Zacks Consensus Estimate is pegged at 57 cents.

With a solid start to 2016 and a moderate increase in prices, the company expects comps to grow in the range of 1.5–2.5%.

Guidance for 2016

Cheesecake Factory reaffirmed the earnings guidance for 2016.

Cheesecake Factory expects earnings per share in the range of $2.56 to $2.68 in 2016, up from the year-ago figure of $2.37. The Zacks Consensus Estimate of $2.64 per share lies within the company’s guidance range. Comps are expected in the range of 1.5% to 2.5%.

Labor costs are expected to rise approximately $11 million, with wage expenses rising 5%.

Food cost inflation is expected to be stable year over year. Dairy costs are likely to rise, while seafood and poultry costs are projected to decline.

The company also expects slightly high operating margins.

The company expects capital expenditures in the range of $100 million to $110.0 million in 2016 owing to eight planned openings in the year and a few in early 2017.

Cheesecake Factory currently carries a Zacks Rank #2 (Buy).

Stocks to Consider

Other well-ranked stocks in the same industry are Carrols Restaurant Group, Inc. (TAST - Free Report) , Dave & Buster's Entertainment, Inc. (PLAY - Free Report) and Darden Restaurants, Inc. (DRI - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy).

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