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Why Is Cheesecake Factory (CAKE) Up 4.5% 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 4.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

Cheesecake Factory Earnings Surpass Estimates in Q3

The Cheesecake Factory Incorporated reported mixed third-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. While the bottom line outpaced the consensus mark for the third straight quarter, the top line missed the same for the fifth consecutive quarter.

In the quarter under review, adjusted earnings came in at 59 cents per share, outpacing the Zacks Consensus Estimate of 54 cents. However, the bottom line declined 7.8% from the prior-year quarter number.

Let’s take a closer look at the numbers.

Detailed Revenue Discussion

Total revenues of $586.5 million in the reported quarter missed the Zacks Consensus Estimate of $594 million. However, the top line improved 2% year over year on the back of increased comparable sales.

Comps at Cheesecake Factory restaurants increased 0.4% compared with growth of 1.5% in the year-ago quarter.
Costs in Detail

Cost of sales ratio decreased 30 bps year over year to 22.7% in the third quarter. Meanwhile, the labor expense ratio was 36.4%, up 100 bps from the year-ago quarter.

Other operating costs were 25.5% of revenues, up 100 bps from the year-ago quarter. General and administrative (G&A) expenses accounted for 6.8% of revenues, up 30 bps from the prior-year quarter. Notably, pre-opening expenses decreased 20 bps year over year to 0.4% in the third quarter.

Balance Sheet

As of Oct 1, 2019, Cheesecake Factory’s cash and cash equivalents totaled $306.3 million compared with $26.6 million as of Jan 1, 2019.

In third-quarter 2019, the company repurchased approximately 263,000 shares of its common stock for $11.4 million. In 2018, Cheesecake Factory bought back approximately 2.3 million shares of common stock for $109.3 million.

The company’s board of directors declared a quarterly cash dividend of 36 cents per share of the common stock. The new dividend is payable Nov 26, 2019, to its shareholders of record at the close of business on Nov 12, 2019.

Development Details

In fiscal 2019, Cheesecake Factory anticipates opening five Cheesecake Factory restaurants, which includes the inauguration of one in Gainesville, FL during the third quarter.

Q4 Outlook

For the fourth quarter, adjusted earnings per share are estimated to be 61-66 cents based on anticipated comps growth of 0.5-1.5% at Cheesecake Factory restaurants. The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 62 cents.

Fiscal 2019 Guidance

For the fiscal year, Cheesecake Factory expects earnings of $2.65-$2.70 per share compared with of $2.58-$2.68 projected earlier.Meanwhile, the company expects comps to grow 1%, compared with earlier estimate of 1-1.5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, 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.

Outlook

Estimates have been broadly trending upward 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.


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