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Cheesecake Factory (CAKE) Q2 Earnings: Disappointment in Store?

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The Cheesecake Factory Inc. (CAKE - Free Report) is scheduled to report second-quarter fiscal 2017 numbers on Aug 2, after market close.

Last quarter, Cheesecake Factory saw a negative earnings surprise of 1.37%. However, prior to that, the company beat/met estimates in each of the trailing three quarters, thereby resulting in an average positive surprise of 6.20% in the last four quarters.

The Cheesecake Factory Incorporated Price, Consensus and EPS Surprise

 

Let’s see how things are shaping up for this announcement.

Factors at Play

For the fiscal second quarter, Cheesecake Factory expects earnings per share in 85 cents to 88 cents range on the back of expected comps growth in the band of 1%-2% at its restaurants. This comps sales range assumes a roughly 50 bps positive impact because of the shift in Easter and the allied spring break vacations into the quarter from the first quarter of fiscal 2016.

Notably, the company has posted positive comps for 29 consecutive quarters backed by various sales and digital initiatives. Menu innovation, increased focus on home and office delivery, the rollout of an improved server training program and the launch of a mobile payment app should help in keeping up the trend.

However, a soft consumer spending environment in the U.S. restaurant space is likely to hurt traffic and in turn comps in the to-be-reported quarter.

Additionally, we believe that Cheesecake Factory’s profits might continue to remain under stress due to a rising wage rates scenario. Moreover, pre-opening costs of outlets, a little less favorable commodity environment and expenses related to sales initiatives might further dent the quarter’s profitability.

Earnings Whispers

Our proven model does not conclusively show earnings beat for Cheesecake Factory this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Cheesecake Factory has an Earnings ESP of -6.58%. This is because the Most Accurate estimate is 71 cents, while the Zacks Consensus Estimate is pegged at 76 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cheesecake Factory currently has a Zacks Rank #5 (Strong Sell).

As it is we caution against stocks with a Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the broader Retail-Wholesale sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Alibaba Group Holding Limited (BABA - Free Report) has an Earnings ESP of +4.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lumber Liquidators Holdings, Inc. (LL - Free Report) has an Earnings ESP of +75% and a Zacks Rank #2.

YUM! Brands, Inc. (YUM - Free Report) has an Earnings ESP of +1.64% and a Zacks Rank #3.

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