Cheesecake Factory Inc.’s (CAKE) earnings of 47 cents per share in the first quarter of 2013 beat the Zacks Consensus Estimate by a nickel and also increased 27.0% year over year. Improvement in top-line coupled with margin expansion boosted earnings during the quarter.
Cheesecake’s revenues nudged up 6.3% year over year to $463.0 million, surpassing the Zacks Consensus Estimate of $457 million by 1.3%. Amid a sluggish industry sales environment, the company’s positive comparable restaurant sales (comps) growth and higher global demand drove top line in the quarter.
Revenues in the quarter also gained from Cheesecake’s better-than-expected volume growth in three new restaurants in the Middle East.
Inside the Headline Numbers
Comps grew 1.4% in the reported quarter offsetting the adverse impact of 60 basis points (bps) owing to the storm that hit the Northeast in early February.
However, excluding this weather impact, comps increased 2.0%. Better menu offerings and higher productivity boosted the comps in the quarter. Further, Cheesecake also gained from the early Easter and spring breaks. In 2012, the Easter and spring breaks fell in the second quarter of the year.
Comps increased 1.6% at Cheesecake Factory restaurant concept but slid 0.9% at the company’s another concept Grand Lux Cafe.
Operating margin in the first quarter expanded 100 bps year over year to 7.9%, buoyed by its cost controlling initiatives. Cost of sales, as a percentage of revenues, remained flat year over year to 24.7% as lower seafood and fish costs and cost efficiency gain was completely neutralized by the adverse impact from the bakery mix shift. Other operating costs were down 30 bps due to lower marketing costs.
Store Update
At the end of the first quarter of 2013, the company operated 174 restaurants. This year, management aims to open as many as 8 to 10 new company-owned restaurants
Guidance
For the second quarter of 2013, earnings per share (EPS) are guided between 55 cents – 57 cents. The Zacks Consensus Estimate for second quarter is 76 cents per share. Comparable store sales are expected to be up 1%-2%. Comps in the quarter are expected to be affected by the shift of the spring breaks to the first quarter.
For 2013, the company raised its lower end guidance for EPS from $2.10 to $2.12. Currently, EPS are expected in the range of $2.12—$2.18 while comps growth is projected in the range of 1.5%–2.5%. Management expects 2013 to be strong, marking the fourth year of consistent increases in comps.
Cheesecake is also on its way to attain historically peak margin levels in 2013 driven by international expansion, strong performance of its three new Middle East units and lower food costs. Management now projects food cost inflation to be about 2.5% in 2013, down from the previous estimate of 3%.