Based in Calabasas Hills, California,Cheesecake Factory Inc. (CAKE) reported adjusted earnings of 36 cents a share in the fourth quarter of fiscal 2010, which surpassed the Zacks Consensus Estimate by a penny. The earnings also soared 28.6% year over year from the prior-year earnings of 28 cents a share.
The better-than-expected results were driven by comparable-store sales growth, higher traffic and effective cost management.
Cheesecake’s top line showed a growth of 4.0% year over year to $416.7 million, slightly above the Zacks Consensus Estimate of $416.0 million. The upside in revenue was perked up by higher comparable sales growth. The company is also focusing on sales driven initiatives like new menu offerings, value-added service and improved food quality to attract customers.
The company’s full-year adjusted earnings per share were $1.42 versus $1.07 in full fiscal 2009. Revenues were $1.66 billion in full fiscal 2010, representing a year-over-year growth of 3.6%.
Inside the Headline Numbers
Comparable-store sales rose 1.0% in the reported quarter and are positive for the eight consecutive quarters as the economy is reviving resulting in an increase in consumer demand. However, the bad weather condition and holiday shift adversely impacted same restaurant sales growth by 120 basis points. By concept, comparable store sales jumped 1.0% and 0.4% at the Cheesecake Factory and Grand Lux Cafe, respectively.
Operating margin climbed to 7.4% during the quarter, reflecting a 100-basis point (bps) drop in cost of sales, a 120-bp plunge in labor costs, a 180-bp fall in general and administrative expenses and a 50-bp dip in depreciation and amortization cost, partially offset by a 30-bp rise in other operating expense.
Financial Position
Cheesecake ended the year with a cash balance of $81.6 million and debt free balance sheet. Shareholders’ equity at the end of 2010 was $592.3 million.
The company repurchased 2.1 million shares in fiscal 2010 and targets a share repurchase of $100 million in 2011.
The company has repaid $40 million remaining under its revolving credit facility balance at the end of the quarter, and has entered into a new revolving credit facility of $200 million.
Outlook
Cheesecake expects to achieve adjusted earnings growth of 15% in 2011, driven by positive comparable sales and unit growth.
The company currently operates 163 restaurants and has opened one new restaurant in the first quarter of 2011. Cheesecake plans to open six to nine restaurants in 2011.
Our Take
As the economy is showing signs of improvement, we believe Cheesecake will be able generate improved earnings.
One of Cheesecake’s primary competitors, BJ’s Restaurants, Inc. (BJRI) has reported adjusted earnings of 22 cents per share for its fourth quarter 2010, inline with the Zacks Consensus Estimate. The earnings increased on comparable-store sales growth and higher traffic.
BJ’S RESTAURANT (BJRI): Free Stock Analysis Report
CHEESECAKE FACT (CAKE): Free Stock Analysis Report
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