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Why is Cheesecake Factory (CAKE) Down 1.2% Since its Last Earnings Report?

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A month has gone by since the last earnings report for The Cheesecake Factory Incorporated (CAKE - Free Report) . Shares have lost about 1.2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is CAKE due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Cheesecake Factory Earnings Miss, Sales Beat in Q1

Cheesecake Factory’s first-quarter 2018 earnings fell short of analysts’ expectation while revenues surpassed the same.

Adjusted earnings of 56 cents per share missed the Zacks Consensus Estimate of 68 cents by 17.6%. Earnings also declined 22.2% year over year. Higher-than-expected insurance cost along with some legal settlement expenses particularly dented the company’s earnings in the quarter.

Despite earnings miss, the company’s strong sales-building initiatives contributed to the top line. The company extensively employed digital and social media campaigns to showcase its high-quality ingredients and preparation techniques, as well as focused on menu innovation.

Detailed Revenue Discussion

Total revenues of $590.7 million surpassed the consensus estimate of $581.5 million by 1.6% and grew 4.8% year over year on the back of increased comparable sales.

Comps at Cheesecake Factory restaurants increased 2.1%, whereas the year-ago quarter marked 0.3% growth in comps and the preceding quarter recorded a 0.9% decline.

Cost Details

Cost of sales ratio increased 10 basis points (bps) year over year to 23%. Meanwhile, labor expense ratio was 35.7%, up 130 bps from the year-ago quarter. This was primarily driven by higher hourly labor, including more wages, overtime and training costs.

General and administrative expenses accounted for 6.6% of revenues in first-quarter 2018, up 20 bps from the prior-year quarter, due to higher marketing costs, repairs and maintenance, and additional workers' comp insurance costs. Notably, pre-opening expenses were 0.2% of total revenues, down 10 bps from the year-ago quarter.

Balance Sheet

As of Apr 3, 2018, cash and cash equivalents amounted to $24.8 million, compared with $68 million as of Jan 2, 2018.

Management announced a cash dividend of 29 cents per share of common stock. The dividend will be payable on May 22, 2018 to stockholders of record at the close of business on May 10, 2018.

During the first quarter of 2018, Cheesecake Factory repurchased approximately 0.7 million shares of its common stock at a cost of $34.9 million.

Second-Quarter 2018 Outlook

For the ongoing quarter, adjusted earnings per share are estimated in the range of 78-82 cents based on an anticipated comps outlook within 0.5-1.5% at Cheesecake Factory restaurants.

2018 Guidance

The company expects earnings in the range of $2.62-$2.74 (down from the previously guided range of $2.64-$2.80). The Zacks Consensus Estimate for fiscal 2018 earnings is pegged at $2.73.

Meanwhile, the company expects comps to grow in the range of 1-2%, up from previously expected comps growth of flat to up 1%.

Capital expenditures for the year are now projected in the range of $80-$90 million, compared with the previously guided range of $90-$105 million.

Additionally, Cheesecake Factory expects to open four restaurants internationally in full-year 2018, including the first location in Beijing that opened in January, and second international licensed location in Riyadh, Saudi Arabia. The company also plans to open four to six company-owned restaurants including one Grand Lux Cafe.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There have been five revisions higher for the current quarter compared to five lower.

VGM Scores

At this time, CAKE has an average Growth Score of C, however its Momentum is doing a lot better with an A. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for value and to a lesser degree growth.

Outlook

CAKE has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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