California-based Cheesecake Factory Inc. (CAKE) reported earnings of 53 cents a share in the fourth quarter of fiscal 2011, outpacing the Zacks Consensus Estimate by a penny and the year-ago quarter earnings of 36 cents. One extra week of operation helped the company to attain higher earnings. In full-fiscal 2011, earnings per share were $1.64 versus $1.35 in 2010.
Cheesecake’s revenues spiked 14.6% year over year to $477.7 million. The upside in the top line was attributable to a rise in comps as well as an additional week in the fourth quarter, which contributed approximately $43 million of sales. In full-fiscal 2011, revenue increased 5.9% year over year to $1,757.6 million.
Inside the Headline Numbers
Comparable restaurant sales grew 2.7% in the reported quarter, reflecting positive growth for the eighth consecutive quarter given the higher consumer demand arising from the reviving economy. Comparable store sales increased 2.7% at Cheesecake Factory and 1.9% at Grand Lux Cafe.
Operating margin in the fourth quarter contracted 60 basis points (bps) year over year to 8.0%, as cost of sales, as a percentage of revenue, declined 20 bps due to higher food costs, other operating costs and expenses fell 100 bps, general and administrative expenses dropped 80 bps and depreciation and amortization expenses decreased 20 bps, partially offset by a 90-bp rise in labor and 40-bp increase in pre-opening costs.
Financial Position
Cheesecake ended the quarter with cash and cash equivalents of $48.2 million. Shareholders’ equity at the end of the reported quarter was $542.8 million.
The company repurchased 973,243 shares in the fourth quarter at a cost of approximately $27 million.
Guidance
For 2012, management expects comps to remain in the range of 1.5% to 2.5% while earnings per share are expected in the range of $1.80 to $1.90.
Cheesecake expects to achieve mid-teens earnings per share growth annually over the next five years, driven by positive comps and unit growth.
The company currently operates 170 restaurants and 2 were opened during the fourth quarter. In 2012, the company plans to open 7 to 8 new restaurants. In addition, the company expects to unveil three restaurants in the Middle East this year under a license agreement.
Our Take
We expect estimates to move up in the coming days, given the focus on enhancing shareholder value, containing costs, developing new restaurants, international expansion and earnings per share growth. However, margins can face some tension from higher minimum wage costs and higher payroll taxes. In addition, the corporate tax rate will be somewhat higher this year.
Cheesecake which competes with likes of Domino’s Pizza Inc. (DPZ) currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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