The Cheesecake Factory Incorporated(NASD: CAKE)

Transcription

1 May 06, 2016 The Cheesecake Factory Incorporated(NASD: CAKE) $51.87 USD ( As of 05/05/16 ) Zacks Rank 3-Hold Style:Value: Growth: Momentum: VGM: Data Overview 52 Week High-Low $ $ Day Average Volume 828,691 Beta 0.47 Market Cap 2.52 B Dividend / Div Yld $0.80 / 1.54% Industry RETAIL-RESTRNTS Industry Rank 92 / 265 (Top 35%) Current Ratio 0.09 Debt/Capital 0.00% Net Margin 5.71% Price/Book (P/B) 4.38 Price/Cash Flow (P/CF) Summary Cheesecake Factory posted first-quarter 2016 results with earnings of $0.68 surpassing the Zacks Consensus Estimate by 13.3%. Also, earnings were up 21.4% year over year on improved comps. Revenues of $554 million missed the consensus mark by 0.4% but increased 6.9% year over year. Comps increased 1.7% at Cheesecake Factory restaurants. Although, comps were hurt by 1.5% decline in traffic, it was partly offset by menu price increase of 2.7% and positive mix of 1.5%. in fact, due to the positive sales trends, the company increased its earnings guidance for 2016 and expects earnings per share in the range of $2.61 to $2.70, up from the prior guidance of $2.56 to $2.68. However, higher labor costs and sluggish comps at the Grand Lux Café brand remain the headwinds, going forward. Elements of the Zacks Rank Agreement Estimate Revisions ( days) Earnings Yield 5.05% Debt/Equity % 86% 100% 67% Value Score P/E (F1) P/E (F1) Rel to Industry Q1 (Current Qtr) Revisions: 10 Up: 0 Down: 10 Q2 (Next Qtr) Revisions: 7 Up: 1 Down: 6 F1 (Current Year) Revisions: 8 Up: 8 Down: 0 F2 (Next Year) Revisions: 9 Up: 6 Down: 3 PEG Ratio 1.38 P/S (F1) 1.10 Magnitude Consensus Estimate Trend ( days) P/S (TTM) 1.18 P/CFO P/CFO Rel to Industry EV/EDITDA Annual 9.82 Growth Score Proj. EPS Growth (3-5 yrs) 13.25% Q1-6.58% Q2-1.59% F % F % Hist. EPS Growth (Q0/Q-1) 5.04 Qtr CFO Growth Upside Zacks Consensus Estimate vs. Most Accurate Estimate 2 Yr CFO Growth 8.19 Return on Equity (ROE) 19.64% NI - CFO / Total Assets Asset Turnover 1.79 Most Accurate: 0.71 Zacks Consensus: 0.71 Most Accurate: 0.62 Zacks Consensus: 0.62 Most Accurate: 2.67 Zacks Consensus: 2.67 Most Accurate: 2.91 Zacks Consensus: 2.92 Momentum Score Q1 0.00% Q2 0.00% F1 0.00% F2-0.34% 1 week Volume change 18.% 1 week Price Cng Rel to Industry 2.66% Surprise Reported Earnings History (F1) EPS Est 1 week change 0.00% (F1) EPS Est 4 week change 0.72% (F1) EPS Est 12 week change 1.26% (Q1) EPS Est 1 week change -6.08% Reported: 0.68 Estimate: 0. Reported: 0.54 Estimate: 0.52 Reported: 0.59 Estimate: 0.56 Reported: 0.69 Estimate: 0.62 Average 4 Qtr Surprise Q End 03/16 Q End 12/15 Q End 09/15 Q End 06/ Zacks Investment Research, All Rights Reserved 10 S. Riverside Plaza Suite 10 Chicago, IL 6

2 The data on the front page and all the charts in the report represent market data as of 05/05/16, while the reports text is as of 05/06/2016 Overview Founded in 1972 and based in Calabasas Hills, CA, The Cheesecake Factory Inc. (CAKE), operates upscale, casual, and full-service dining restaurants in the United States. As of Feb 25, 2016, Cheesecake Factory operated 201 company-owned restaurants: 188 under The Cheesecake Factory brand, 12 under the Grand Lux café brand and one under the RockSugar Pan Asian Kitchen brand. The company also has Cheesecake Factory branded restaurants in the Middle East and Mexico under licensing agreements. The company operates through two segments, The Cheesecake Factory and Other (includes Grand Lux, outside bakery sales, international licensing). Zacks Equity Research: CAKE Page 2 of 7

3 Reasons To Buy: Strong Brand Recognition: Cheesecake is one of the most recognized upscale casual restaurants operating in the U.S. It taps all dining preferences from lunch and dinner day parts to the mid-afternoon and late-night day part. Cheesecake Factory is well positioned to sustain its same-stores sales growth owing to a constant increase in guest traffic. It has posted positive comps for the sixth consecutive year of positive comps in every quarter.. The Cheesecake Factory s aggressive expansion initiatives and efforts to boost sales and margins are commendable. Focus on Expansion: Despite challenging economic conditions, The Cheesecake Factory has been expanding in the domestic as well as international markets. Driven by huge demand, the company opened 11, 10, 9 and 8 new restaurants during 2015, 2014, 2013 and 2012, respectively and plans to open more, going forward.. The company remains focused on opening its restaurants at high grade sites to hit targeted returns. The restaurants opened over the past three years are performing better than the erstwhile locations. Besides the domestic market, the company is of late foraying into lucrative markets like the Middle East, North Africa, Central and Eastern Europe, Russia, Turkey, Mexico, Kuwait and Lebanon and Chile. Also, the company is set to open a Cheesecake Factory outlet at the Shanghai Disney Resort in 2016 marking the company s entry in China, East Asia, a region known for its economic growth and healthy investment returns. The region boasts a relatively younger population and a growing middle class with higher disposable income. Therefore, entry into this market has helped the company to boost traffic and improve comps. Initiatives to Boost Sales: The company is committed to boost its sales and improve margins to survive in the competitive environment. In order to boost comps, the company is focusing on improving its speed of service and training its servers so that they render higher level of service. Meanwhile, given consumers preference for healthy food, the company introduced a new category called Superfoods earlier this year. It features items that contain nutrient rich ingredients such as kale, blueberries, almonds, salmon and quinoa. Also, the company is capitalizing on technology and is building a mobile app branded for The Cheesecake Factory for quick payments. Additionally, the company continues to focus on its gift card program. Gift card sales increased approximately 25% on an average in each of the past two years. These initiatives would help the company to continue to keep up the trend of positive comps. Focus on Improving Margins: The company is evaluating different approaches to limit its costs. It installed a cost management system with substantial capabilities across production, planning and inventory management a few years ago to help analyze usage and waste. Amid current soft environment, such efforts to control costs would help to improve margins. Cash Deployment Strategy: Cheesecake continuously returns wealth to shareholders via dividends and share repurchases. Since the inception of its share repurchase authorization, the company has repurchased shares worth $1.24 million through Sep 29, Moreover, the company has continuously paid quarterly dividends since it announced its first dividend payment of $0.12 per share in the second quarter of Since then, the company has increased its dividend thrice, by 17%, 18% and 21% in the second quarter of 2013, 2014 and 2015, respectively. The company returned $170.8 million and $210.9 million in cash via share buybacks and dividends in 2014 and 2013, respectively, taken together. In fact, Cheesecake Factory returned $141 million in 2015, higher than its target.. Reasons To Sell: Rising Costs to Keep Profits Under Pressure: Of late, the company s profits have been under pressure owing to a rising wage rates scenario. Meanwhile, given the company s unit expansion plans, pre-opening costs of outlets and costs related to sales boost initiatives remain headwinds. Continued Sluggish Performance in Grand Lux Cafe: Continued underperformance of Grand Lux Cafe remains a matter of concern. Segment comps have been continuously declining for the past few quarters as the company has been increasing menu prices. These menu price increases amid a soft consumer spending environment have been hurting traffic and thereby comps. In fact, owing to higher wage rate, the company intends to once again increase menu prices in the near term. This would further hurt traffic. Higher food costs and some additional costs related to self-insured group medical coverage, pre-opening costs of outlets and higher wage rates would hurt profitability in the near term. Soft Consumer Spending: The restaurant industry has been experiencing low consumption over the last few quarters. Despite moderate improvement in economic growth, consumers are increasing their spending only modestly as an increase in jobs this year is yet to translate into significantly higher wages. Higher health care costs and still-tightened credit availability continue to hurt consumer discretionary spending in the U.S. As a result, Americans are unwilling to dine out, which is pulling down the company s sales. Last Earnings Report Cheesecake Factory First Quarter Earnings Beat; View Raised Quarter Ending 03/2016 Zacks Equity Research: CAKE Page 3 of 7

4 The Cheesecake Factory Inc. posted mixed first-quarter 2016 results wherein earnings beat the Zacks Consensus Estimate while revenues missed the same. Earnings and Revenue Discussion The company's adjusted earnings of $0.68 per share beat the Zacks Consensus Estimate of $0. by 13.3% and increased 21.4% year over year on the back of increased comps. Report Date Apr 27, 2016 Sales Surprise -0.37% EPS Surprise 13.33% Quarterly EPS 0.68 Annual EPS (TTM) 2.50 Sales of $553.7 million, on the other hand, missed the Zacks Consensus Estimate of $556.0 million by 0.4% but was up 6.9% on a year-over-year basis. Inside the Headlines Comps at Cheesecake Factory restaurants increased 1.7%, higher than the 1.1% growth registered last quarter, but lower than 4.2% posted in the year-ago quarter. Comps were hurt by a 1.5% decline in traffic, partly offset by menu price increase of 2.7% and positive mix of 1.5%. Cost of sales ratio decreased 80 basis points (bps) year over year to 23.6%. This was primarily attributable to lower seafood and dairy costs plus softer-than-predicted poultry costs, slightly offset by higher costs of meat. Labor expense ratio was 33.5%, up 50 bps year over year due to high wage rates. General and administrative expenses accounted for 6.4% of revenues in the first quarter flat with the prior-year quarter level. Preopening expenses were $2.3 million, up 53.3% year over year. Second-Quarter Outlook For the second quarter, Cheesecake Factory expects earnings per share between $0.69 and $0.72. With a solid start to 2016 and a moderate increase in prices, the company expects comps to remain flat or grow up to 1%. In the second quarter, the company is poised to roll out several top line boosting initiatives such as an enhanced server training program, mobile payment app, CakePay and increase its focus on home and office delivery through the initiation of a pilot program of partnerships with third-party providers in select locations. Guidance for 2016 Cheesecake Factory raised the earnings guidance for The company expects earnings per share in the range of $2.61 to $2.70, up from the prior guidance of $2.56 to $2.68. Meanwhile, the company had reported earnings of $2.37 a year ago. Comps are projected in the range of 1% to 2%. The guidance reflects second half comps in the range of 1.5% to 2.5%, taking second-quarter sales expectations and the impact of a possible shift in the timing of some expenses into consideration. Wage inflation is forecasted at 5% for 2016, due to governmentally-regulated and higher wage environment. Food cost inflation is expected to remain stable on a year-over-year basis. Dairy costs are likely to rise, while seafood and poultry costs are expected to decline. The company also expects an increase in operating margins. Capital expenditures are estimated in the range of $100 million to $110.0 million for 2016 owing to eight planned openings in the year and a few scheduled for early 2017 Recent News The Cheesecake Factory Opens New Unit at Albuquerque, NM Feb 23, 2016 The Cheesecake Factory recently announced the opening of a restaurant in Albuquerque, New Mexico at the Coronado Center. The Cheesecake Factory of Albuquerque, located at 60 Menaul Blvd. NE Space 0, marked the company s debut in New Mexico. The restaurant will offer almost 250 menu items including the company s signature 50 lower calorie SkinnyLicious dishes and new Super Foods salads which are handmade with fresh ingredients and more than 50 cheesecakes and desserts. Cheesecake Factory Opens New Restaurant in Jersey City, NJ Dec 8, 2015 Cheesecake Factory opened a restaurant in Jersey City, NJ at Newport Centre mall. Located at Mall Drive West, Unit #A22, the new outlet offers roughly 250 items. These include 50 low-calorie SkinnyLicious dishes made with fresh ingredients that are popular among health-conscious guests. Further, the menu includes several well-known cheesecakes and desserts. Zacks Equity Research: CAKE Page 4 of 7

5 Industry Analysis Zacks Industry Rank: 92 / 265 (Top 35%) Top Peers ARCOS DORADOS-A (ARCO) BRAVO BRIO RSTR (BBRG) BJS RESTAURANT (BJRI) BLOOMIN BRANDS (BLMN) BOB EVANS FARMS (BOBE) BOJANGLES INC (BOJA) BUFFALO WLD WNG (BWLD) CRACKER BARREL (CBRL) CHUYS HOLDINGS (CHUY) Industry Comparison Retail-restrnts Position in Industry: 17 of 55 Industry Peers CAKE Market Cap 2.56 B # of Analysts 14 Dividend Yield 0.99% Growth Score Hist. EPS Growth (3-5 yrs) 13.25% Proj. EPS Growth (F1/F0) 12.73% Curr. Cash Flow Growth 11.47% Hist. Cash Flow Growth (3-5 yrs) 5.38% Current Ratio 0.09 Debt/Capital 0.00% Net Margin 5.71% Return on Equity 19.64% Sales/Assets 1.79 Proj. Sales Growth (F1/F0) 8.% Value Score Cash/Price EV/EBITDA 9.82 PEG Ratio 1.38 Price/Book (P/B) 4.38 Price/Cash Flow (P/CF) P/E (F1) Price/Sales (P/S) 1.10 Earnings Yield 5.05% Debt/Equity 0.00 Cash Flow ($/share) 4.18 Momentum Score Daily Price Chg 0.34% 1 Week Price Chg 2.66% 4 Week Price Chg 0.57% 12 Week Price Chg 11.55% 52 Week Price Chg 5.56% 20 Day Average Volume 808,6 (F1) EPS Est Wkly Chg 0.00% (F1) EPS Est Mthly Chg 0.72% (F1) EPS Est Qtrly Chg 1.26% (Q1) EPS Est Mthly Chg -6.21% X Industry S&P M B % 1.75% % 8.15% 14.63% 6.75% 11.52% 3.88% 8.10% 8.05% % 42.03% 4.87% 9.36% 10.23% 16.38% % 2.49% % 5.44% % -0.64% 1.35% -0.01% 0.00% 0.27% 10.03% 12.79% -9.25% -2.97% 272, % 0.03% 0.00% -0.07% 0.11% 0.84% 0.00% 0.00% ARCO BBRG BJRI 1.01 B M 1.08 B % 0.00% 0.00% NA % 9.39% 4.49% % 1.53% 25.07% % -2.45% 21.92% % 4.47% 22.99% NA -0.47% 14.85% % 44.13% 23.81% -0.25% 1.01% 5.05% % 17.89% 13.03% % 0.43% 10.80% 3.90% -1.26% -0.16% 8.22% -4.67% 1.80% 37.14% -7.13% 6.82% % -2.36% 9.86% % % -5.82% 559,516 61, , % -0.50% 0.00% 0.00% -0.50% 2.94% 5.00% -6.57% 5.37% NA -2.67% 0.00% Zacks Equity Research: CAKE Page 5 of 7

6 Zacks Rank Education The Zacks Rank is calculated from four primary inputs: Agreement, Magnitude, Upside and Surprise. Agreement This is the extent which brokerage analysts are revising their earnings estimates in the same direction. The greater the percentage of estimates being revised higher, the better the score for this component. For example, if there were 10 estimate revisions over the last days, with 8 of those revisions up, and the other 2 down, then the agreement factor would be 80% positive. If, however, 8 were to the downside with only 2 of them up, then the agreement factor would be 80% negative. The higher the percentage of agreement the better. Magnitude This is a measure based on the size of the recent change in the current consensus estimates. The Zacks Rank looks at the magnitude of these changes over the last days. In the chart to the right, the display shows the consensus estimate from -days ago, -days ago, 7-days ago, and the most current estimate The difference between the current estimate and the estimate from -days ago is displayed as a percentage. A larger positive percentage increase will score better on this component. Upside This is the difference between the most accurate estimate, as calculated by Zacks, and the consensus estimate. For example, a stock with a consensus estimate of $1.00, and a most accurate estimate of $1.05 will have an upside factor of 5%. This is not an indication of how much a stock will go up or down. Instead, it's a measure of the difference between these two estimates. This is particularly useful near earnings season as a positive upside percentage can be used to help predict a future surprise. Surprise The Zacks Rank also factors in the last few quarters of earnings surprises. Companies that have positively surprised in the recent past have a tendency of positively surprising again in the future (or missing if they recently missed). A stock with a recent track record of positive surprises will score better on this factor than a stock with a history of negative surprises. These stocks will have a greater likelihood of positively surprising again. Zacks Style Score Education The Zacks Style Score is as a complementary indicator to the Zacks Rank, giving investors a way to focus on the best Zacks Rank stocks that best fit their own stock picking preferences. Academic research has proven that stocks with the best Growth, Value, and Momentum characteristics outperform the market. The Zacks Style Scores rate stocks on each of these individual styles and assigns a rating of A, B, C, D and F. An A, is better than a B; a B is better than a C; and so on. Value Score Growth Score Momentum Score VGM Score As an investor, you want to buy stocks with the highest probability of success. That means buying stocks with a Zacks Rank #1 or #2, Strong Buy or Buy, which also has a Style Score of an A or a B. Zacks Equity Research: CAKE Page 6 of 7

7 Disclosures The analysts contributing to this report do not hold any shares of this stock. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts' personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. Zacks Equity Research: CAKE Page 7 of 7