Why Is Cheesecake Factory (CAKE) Down 51.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Cheesecake Factory (CAKE). Shares have lost about 51.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cheesecake Factory due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Cheesecake Factory Q4 Earnings Lag Estimates, Fall Y/Y

The Cheesecake Factory reported fourth-quarter fiscal 2019 results wherein both earnings and revenues missed the Zacks Consensus Estimate. Following lower-than-expected results, shares of the company declined 3.4% in after-hours trading on Feb 19.

In the quarter under review, adjusted earnings came in at 58 cents per share, lagging the Zacks Consensus Estimate of 61 cents. Moreover, the bottom line dipped 7.9% from the prior-year number. This downside was primarily attributed to higher operating and acquisition-related costs.

Let’s take a closer look at the numbers.

Detailed Revenue Discussion

Total revenues of $694 million in the reported quarter missed the Zacks Consensus Estimate of $704 million. However, the top line improved 18.6% year over year on the back of increased comparable sales.

Comps at Cheesecake Factory restaurants slipped to 0.6% growth from the 1.9% rise in the year-ago quarter.

The Cheesecake Factory Incorporated Price, Consensus and EPS Surprise

The Cheesecake Factory Incorporated Price, Consensus and EPS SurpriseThe Cheesecake Factory Incorporated price-consensus-eps-surprise-chart | The Cheesecake Factory Incorporated Quote

Costs in Detail

Cost of sales ratio decreased 20 bps year over year to 22.8% in the fourth quarter. Meanwhile, the labor expense ratio was 36.2%, up 40 bps from the year-ago quarter.

Other operating costs represented 26% of revenues, up 200 bps from the year-ago quarter. General and administrative (G&A) expenses accounted for 6.8% of revenues, up 50 bps from the prior-year quarter. However, in the fourth quarter, pre-opening expenses were flat at 0.9% year over year.

Balance Sheet

As of Dec 31, 2019, Cheesecake Factory’s cash and cash equivalents totaled $65.4 million compared with $26.6 million as of Jan 1, 2019. In the fiscal fourth quarter, the company repurchased approximately 10,000 shares of its common stock for $0.4 million. In 2019, Cheesecake Factory bought back 1.1 million shares of common stock for $51 million.

The company’s board of directors declared a quarterly cash dividend of 36 cents per share of the common stock. The new dividend is payable Mar 20, 2020 to its shareholders of record at the close of business on Mar 9, 2020.

Developmental Details

In fiscal 2020, Cheesecake Factory anticipates opening 20 new restaurants including six Cheesecake Factory locations, six North Italia restaurants and eight restaurants within the FRC subsidiary. It also expects to launch four Cheesecake Factory restaurants internationally under licensing agreements

2019 Highlights

Total revenues of $ 2,482.7 million were up 6.4% year over year. Adjusted earnings per share (EPS) for the year ended Dec 31, 2019 was reported at $2.61 compared with $2.51 as on Jan 1, 2019. In fiscal 2019, Comps at Cheesecake Factory restaurants slid to 0.8% rise from growth of 1.7% a year ago.

Q1 Outlook

For the first quarter, adjusted EPS is estimated to be 69-74 cents based on anticipated comps growth of 1-2% at Cheesecake Factory restaurants. Total revenues for The Cheesecake Factory restaurants are estimated in the range of $715-$720 million.

Fiscal 2020 Guidance

For the fiscal 2020, Cheesecake Factory expects earnings of $2.70-$2.86 per share. Its mid-point of $2.78 is above the current Zacks Consensus Estimate of $2.73. Meanwhile, the company expects comps to grow in the range of 1-2%. Total revenues for fiscal 2020 are estimated at $2.9 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 15.15% due to these changes.

VGM Scores

At this time, Cheesecake Factory has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Cheesecake Factory has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.