It has been about a month since the last earnings report for Cheesecake Factory (CAKE - Free Report) . Shares have added about 2.5% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Cheesecake Factory's Q3 Earnings Beat, Revenues Miss Estimates
Cheesecake Factory reported mixed third-quarter 2018 results, with earnings surpassing the Zacks Consensus Estimate after a miss in the last two quarters. However, revenues missed the mark.
Adjusted earnings of 62 cents per share beat the Zacks Consensus Estimate of 58 cents by 6.9%. The bottom line improved 10.7% from the prior-year quarter. Particularly, reduced tax rate, stabilized medical insurance costs along with lower wage inflation drove earnings in the quarter. Also, higher comps at the Cheesecake Factory restaurants aided overall profitability.
Detailed Revenue Discussion
Total revenues came in at $580.9 million, which missed the consensus estimate of $585 million by 0.7%. However, the top line improved 4.6% year over year on the back of increased comparable sales.
Comps at Cheesecake Factory restaurants increased 1.5%, while the same had declined 2.3% in the year-ago quarter.
Cost of sales ratio increased 10 basis points (bps) year over year to 23%. Meanwhile, labor expense ratio was 35.2%, up 30 bps from the year-ago quarter but down 60 bps from the second quarter of 2018.
Other operating costs were 24.8% of revenues, down 10 bps from the year-ago quarter. General and administrative (G&A) expenses accounted for 6.5% of revenues in third-quarter 2018, up 10 bps from the prior-year quarter. Notably, pre-opening expenses remained flat at 0.6% of total revenues compared with the year-ago quarter.
As of Oct 2, 2018, cash and cash equivalents totaled $12.6 million compared with $6 million as of Jan 2, 2018.
In the third quarter of 2018, Cheesecake Factory repurchased approximately 370,000 shares of its common stock at a cost of $18.9 million. Year to date, the company has bought back approximately 1.2 million shares of its common stock at a cost of $60.9 million.
For the fourth quarter, adjusted earnings per share are estimated in the range of 60-64 cents based on anticipated comps of 0.5-1.5% at Cheesecake Factory restaurants.
Cheesecake Factory expects earnings per share in the $2.42-$2.46 band (as compared with the previous projection of $2.40-$2.48). The Zacks Consensus Estimate for 2018 earnings is pegged at $2.43.
Meanwhile, the company expects comps to grow 1.5% compared with the previous estimation of 1.5-2%.
For 2018, Cheesecake Factory continues to expect capital expenditures between $80 million and $85 million.
Additionally, the company plans on opening five restaurants in 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Cheesecake Factory has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
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.