Cheesecake Factory (CAKE)

After today’s (Tuesday’s) market close, The Cheesecake Factory reported third-quarter adjusted EPS of $0.58, surpassing our $0.50 forecast and sell-side consensus (according to Consensus Metrix) of $0.48.

After today’s (Wednesday’s) market close, The Cheesecake Factory reported adjusted second-quarter EPS of $1.09. This surpassed our $0.99 estimate and sell-side consensus (according to Consensus Metrix) of $1.00.

After today’s (Wednesday’s) market close, The Cheesecake Factory reported that its first-quarter adjusted EPS reached $0.73. This easily surpassed our $0.60 forecast and sell-side consensus (according to Consensus Metrix) of $0.63. The Q1 income-statement line item that was most better than our estimates was Other Operating Costs/Revenues, which at 26.2% actual was +60 basis points more favorable than our 26.8% estimate. Trends in utilities and supply-chain costs helped get to this line-item outperformance in Q1. Management notes that it does not build any continued leverage into this line item into its stated targets (see below for more info about those targets).

This morning, we published an industry report entitled “Updating our Q1 Kalinowski Casual Dining Same-Store Sales Index.” We encourage you to read that report in conjunction with this Cheesecake Factory note.

After today’s (Wednesday’s) market close, The Cheesecake Factory reported adjusted Q4 2023 EPS of $0.80, surpassing our $0.77 forecast and sell-side consensus (according to Consensus Metrix) of $0.73.

After today’s (Wednesday’s) market close, The Cheesecake Factory reported adjusted Q4 2023 EPS of $0.80, surpassing our $0.77 forecast and sell-side consensus (according to Consensus Metrix) of $0.73.

We believe that January has proven a tough month as regards same-store sales for a wide swath of the restaurant industry, including the casual dining segment. Based on our conversations with industry contacts, bad weather – lapping a mild winter from one year ago – clearly seems to be the #1 reason behind the challenged January sales trends. As of today, it’s possible that February could prove to be similarly challenged.

The Cheesecake Factory has been one of the most successful full-service restaurant concepts of all time. It’s also arguably the most differentiated concept of size in the full-service space. But as with every restaurant company out there, there are always opportunities to improve. What can The Cheesecake Factory improve about itself?

After today’s (Wednesday’s) market close, The Cheesecake Factory reported adjusted third-quarter EPS of $0.39. This was below our $0.48 forecast and sell-side consensus (according to Consensus Metrix) of $0.43.

After today’s (Wednesday’s) market close, The Cheesecake Factory reported adjusted second-quarter EPS of $0.88, surpassing our $0.85 forecast and sell-side consensus (according to Consensus Metrix) of $0.82.

The Cheesecake Factory plans to report its second-quarter results after the market close on Wednesday, August 2nd. We do not know to what degree, if any, The Cheesecake Factory will discuss third quarter-to-date same-store sales trends on the related conference call that afternoon.

After today’s (Wednesday’s) market close, The Cheesecake Factory reported adjusted first-quarter EPS of $0.61. This was one cent better than our $0.60 projection, and two cents better than sell-side consensus (according to Consensus Metrix) of $0.59.

After today’s (Wednesday’s) market close, The Cheesecake Factory reported adjusted Q4 EPS of $0.56. This was ahead of our $0.44 estimate, but one cent below sell-side consensus (according to Consensus Metrix) of $0.57.

After today’s (Tuesday’s) market close, The Cheesecake Factory reported adjusted Q3 EPS of -$0.03, falling way short of our +$0.31 forecast and sell-side consensus (according to Consensus Metrix) of +$0.28.

After today’s (Wednesday’s) market close, The Cheesecake Factory reported adjusted Q2 EPS of $0.52, falling well short of our $0.77 forecast and sell-side consensus (according to Consensus Metrix) of $0.78. This EPS miss came despite the adjusted Q2 tax rate of 5.1% being more favorable than our 11.5% projection and consensus of 11.8%.

Momentum in casual-dining segment same-store sales weakened over the course of June, with (for example) Darden Restaurants (DRI; Not Rated) remarking on its June 23rd conference call that “industry sales have slowed from May to June, and we have seen that as well…. And we talk about magnitude — it’s a couple of hundred basis points of the industry. It’s not like the industry went negative completely, but it’s closer to flat than it was before in the month of May.”

After today’s market close, The Cheesecake Factory reported adjusted Q1 EPS of $0.47. This was short of our $0.52 estimate, as well as sell-side consensus (according to Consensus Metrix) of $0.51.

Some challenges facing The Cheesecake Factory today likely will continue to do so for much or all of 2022. For example, in its mid-February conference call, management noted at that time that it anticipated commodity inflation of low-double digits on an annual basis, including mid-teens presume in Q1, dwindling down to mid-to-high single-digit pressure in Q4. Wage inflation is presumed to be +5% this year. And, of course, that February 16th conference call came before Russia invaded Ukraine on February 24th.

After today’s (Wednesday’s) market close, The Cheesecake Factory reported adjusted Q4 EPS of $0.49, falling short of our $0.62 forecast and sell-side consensus (according to Consensus Metrix) of $0.58. Management comments that “We believe our operating results would have been in line with expectations but for the softer sales trend during the last two weeks of the quarter which coincided with the Omicron surge.”

The Cheesecake Factory (CAKE; Neutral, $34.94) plans to report its fourth quarter earnings after the market close on Wednesday, February 16th. The company likely will provide an update on Q1-to-date same-store sales trends on its related conference call that afternoon.

After today’s (Wednesday’s) market close, The Cheesecake Factory reported adjusted Q3 EPS of $0.65, falling short of our $0.70 forecast and sell-side consensus (according to Consensus Metrix) of $0.70. We would note that Labor Expenses/Total Revenues amounted to 37.1% in Q3, as opposed to our 36.1% projection. In addition, Other Operating Costs/Total Revenues came to 26.7%, as compared to our 26.1% estimate. Management notes that higher-than-expected impacts in Q3 included group medical insurance costs, sick pay, and training expenses.

There appear to be at least two growing opportunities for The Cheesecake Factory. First, ghost kitchens seem to be well-aligned with the goals of the company’s bakery business. Second, Europe represents an opportunity. We are likely getting closer than ever to the company’s opening (most probably via a licensed partner) of the first Cheesecake Factory restaurant in Europe. And even if this latter opportunity doesn’t happen any time soon, perhaps there have been some hints that the bakery business — and the “Cheesecake Factory at Home” business — are poised for rapid growth in Europe, too.

After Tuesday’s market close, The Cheesecake Factory reported adjustedQ2 EPS of $0.80, ahead of our $0.63 forecast and sell-side consensus (according to Consensus Metrix) of $0.77. Factors contributing to the Q2 EPS outperformance relative to our forecasts include: (1) Cost of Sales/Revenues 22.0% actual vs. 22.5% projected, (2) Labor Expenses/Revenues 35.7% actual vs. 36.1% projected, and (3) D&A/Revenues 2.9% actual vs. 3.3% projected.

With this note, we raise our full-Q2E same-store sales forecast for brand Cheesecake Factory to +149.0% (from +142.5%). Our updated +149.0% projection implies a two-year sales figure of about +7.3% for full-Q2E. As of this writing, sell-side consensus is at +145.3% for the one-year number.

After Wednesday’s market close, The Cheesecake Factory reported adjusted Q1 EPS of +$0.20. This surpassed our +$0.05 forecast and sell-side consensus (according to Consensus Metrix) of -$0.07. Factors behind the outperformance relative to our forecast include: (1) Cost of Sales/Revenues (21.7% actual vs. 22.7% forecasted), (2) Labor Expenses/Revenues (36.6% actual vs. 37.7% projected, and (3) D&A/Revenues (3.5% actual vs. 3.8% estimated), partially offset by (1) Other Operating Expenses/ Revenues (28.2% actual vs. 27.7% forecasted), and (2) G&A/Revenues (7.1% actual vs. 6.8% forecasted).

The Cheesecake Factory likely will release its Q1 2021 earnings in late April or early May. How do CAKE shares tend to trade heading into earnings, and the day after an earnings release?

After today’s (Wednesday’s) market close, The Cheesecake Factory reported adjusted Q4 EPS of -$0.32, below our +$0.06 forecast and sell-side consensus (according to Consensus Metrix) of -$0.02.

About six months ago, we published a report examining market-share opportunities within the casual dining sector. In this report, we update our numbers. One of the important changes is that we now look for 8%-20% of the casual dining restaurants in the U.S. that were in operation as of the start of 2020 to be closed permanently by the end of March 2021. (Previously, we were looking for 3%-15% of casual dining restaurants to be closed permanently by the end of December 2020.) Keep in mind that we expect these closures to be heavily weighted toward independents/momand-pops and, to a somewhat lesser degree, smaller (privately-held in nearly all cases) restaurant chains.

With this report, we update our data-driven Kalinowski Casual Dining Index for Q4E to -18.4%. This figure is based on our latest proprietary checks/data as regards samestore sales performance for this segment during October and November. Our implied numbers for these October, November, and December are approximately -14%, -19%, and -22%, respectively.

After Thursday’s market close, The Cheesecake Factory (CAKE; Neutral, $29.94) reported adjusted Q3 EPS of -$0.33, better than our forecast of -$0.45, and also better than sell-side consensus (according to Consensus Metrix) of -$0.37.

With this report, we update our data-driven Kalinowski Casual Dining Index for Q3E to -19.6%. This figure is based on our latest proprietary checks/data as regards same-store sales performance for this segment during July, August, and September. Our implied numbers for these three months are about -24%, -19%, and -16%, respectively.

With this report, we introduce our quarterly EPS estimates for The Cheesecake Factory (CAKE; Neutral, $29.32) for 2021E as follows:
Q1E: $0.14, Q2E: $0.32, Q3E: $0.26, Q4E: $0.33

After today’s market close, The Cheesecake Factory (CAKE; Neutral, $26.57) reported adjusted Q2 EPS of -$0.87, better than our -$1.00 forecast and sell-side consensus (according to Consensus Metrix) of -$1.09. The diluted share count used in the calculation is about 52.8 million, quite different from our 46.4 million estimate and consensus of 46.5 million. The reason for the higher actual “Represents the impact of assuming the conversion of preferred stock into common stock (8,996,851 shares).” Excluding this effect, adjusted Q2 EPS would have been about -$1.05, according to our calculations. CAKE shares were up by about +4.9% in today’s regular trading session, and may give back a bit of that in tomorrow’s trading.

Given risks to The Cheesecake Factory’s (CAKE; Neutral, $20.57) labor costs — as little-to-no states and local municipalities appear willing to budge on planned minimum-wage hikes, despite extraordinary economic challenges facing the U.S. restaurant industry (and especially full-service restaurants) — we lower our 2020E and 2021E EPS estimates for the company by -20 cents and -35 cents, respectively, to -$1.40 and +$1.05. In our coverage list the company most likely to be affected due to the minimum-wage factor remains The Cheesecake Factory, which owns and operates all 200+ of its namesake restaurants in the U.S.

Is it possible the Street is underestimating sales and market-share opportunities in 2021 for many of the larger publicly-traded casual dining concepts?

A company called Ghost Kitchens is offering desserts from The Cheesecake Factory (CAKE; Neutral, $19.97) Bakery from at least five different locations in Canada, Kalinowski Equity Research LLC has learned. For example, the following is listed on DoorDash’s website in Calgary, Alberta, Canada:
GHOST KITCHENS PRESENTS CHEESECAKE FACTORY BAKERY

After today’s market close, The Cheesecake Factory (CAKE; Neutral, $19.52) reported adjusted Q1 EPS of +$0.04, one cent above our +$0.03 forecast, and well above sellside consensus (according to Consensus Metrix) of -$0.39.

We lower our U.S. same-store sales estimates for The Cheesecake Factory (CAKE; Neutral) as follows:
Q1E 2020: down by -23 percentage points to -21.0%
Q2E 2020: down by -51.5 percentage points to -50%
Q3E 2020: down by -26.5 percentage points to -25%
Q4E 2020: down by -16.5 percentage points to -15%
Full-year 2020E: down by -29.4 percentage points to -27.8%
Full-year 2021E: up by +8.5 percentage points to +10.0%

This past Thursday afternoon, we hosted the latest in our “Ask the Experts” series of conference calls, this time around with featured speakers from The Cheesecake Factory: Executive Vice President and Chief Financial Officer (CFO) Matt Clark, and Senior Director, Investor Relations Stacy Feit. Here are some brief highlights from this call:

Kalinowski Equity Research invites you to participate in our latest “Ask the Experts” conference call, to take place on Thursday, March 5th starting at 2:00 PM Eastern time. The featured speakers will be The Cheesecake Factory’s Executive Vice President and Chief Financial Officer (CFO) Matt Clark, and Senior Director, Investor Relations Stacy Feit.

Kalinowski Equity Research invites you to participate in our latest “Ask the Experts” conference call, to take place on Thursday, March 5th starting at 2:00 PM Eastern time. The featured speakers will be The Cheesecake Factory’s Executive Vice President and Chief Financial Officer (CFO) Matt Clark, and Senior Director, Investor Relations Stacy Feit.

Kalinowski Equity Research invites you to participate in our latest “Ask the Experts” conference call, to take place on Thursday, March 5th starting at 2:00 PM Eastern time. The featured speakers will be The Cheesecake Factory’s Executive Vice President and Chief Financial Officer (CFO) Matt Clark, and Senior Director, Investor Relations Stacy Feit.

After today’s (Tuesday’s) market close, The Cheesecake Factory (CAKE; Neutral) reported adjusted Q3 EPS of $0.59, coming in ahead of our $0.55 forecast and sellside consensus (according to Consensus Metrix) of $0.55. We attribute the betterthan-expected earnings to favorable Cost of Sales/Revenues (22.7% actual vs. 23.4% forecasted).

With this report, we reduce our Q3E same-store sales forecast for brand Cheesecake Factory (CAKE; Neutral) by -30 basis points, to +0.2%, placing us as the low forecast on the sell-side according to Consensus Metrix data. Our adjustment reflects weak casual-dining sector same-store sales trends for July and August, partially offset by The Cheesecake Factory’s relatively healthier brand (destination status) within casual dining. Our Q3E EPS estimate goes down by $0.01 to $0.55, placing us in line with consensus. We also take down our Q4E EPS estimate by $0.01 (to $0.64), and reduce our full-year 2019E EPS projection by $0.02, to $2.63.

After today’s market close, The Cheesecake Factory (CAKE; Neutral) reported adjusted Q2 EPS of $0.82, matching our $0.82 projection, and coming in one cent above sell-side consensus (according to Consensus Metrix) of $0.81.

With this report, we lower our data-driven Kalinowski Casual Dining Index for Q2E by 40 basis points, to +1.9%. This figure is based on our latest proprietary checks/data as regards same-store sales performance for this segment during April 2019 and the first half of May 2019.

African Swine Fever (ASF) is spreading rapidly not only in China — where it seems as many hogs have been culled from herds in that country as there are born in the entire United States in any given year — but also in other parts of Asia, not to mention parts of Europe. Based on our conversations with suppliers to the restaurant industry, and also with privately-held restaurant companies, we believe that commodity-cost risks over the next 1-3 years from proteins may be higher than the Street currently anticipates. The sources of this are many, including: (1) uncertainty regarding just how massive the ASF issue is in China, (2) the time it will take to replenish swine supplies in China — the time from gestation to slaughter is typically more than 30 months, and (3) the not-zero possibility that ASF could make its way to the United States, although efforts are being made on multiple fronts to prevent that from happening. As many involved note, the situation regarding ASF remains fast-moving and difficult to quantify.

After today’s market close, The Cheesecake Factory (CAKE; Neutral) reported Q1 2019 adjusted EPS of $0.62, ahead our $0.61 forecast and sell-side consensus (according to Consensus Metrix) of $0.60.

We briefly note the following tidbits regarding burger-sector market-share trends in the U.S., Burger King (owned by Restaurant Brands International [QSR; Not Rated]), and The Cheesecake Factory (CAKE; Neutral):

With this report, we introduce our data-driven Kalinowski Casual Dining Index for Q1E at +1.9%. This figure is based on our latest proprietary checks/data as regards samestore sales performance for this segment during January 2019 and most of February 2019.