Cheesecake Factory: Third-Quarter Results

Third-quarter net income at Cheesecake Factory (CAKE) increased to $27.2 million from $20.6 million a year earlier. Revenue increased 5.4 percent to $453.8 million, helped by a 1.5 percent increase in guest traffic.

Sales at restaurants open 18 months were up 2.9 percent at the Cheesecake Factory and fell 2 percent at Grand Lux Cafe, its smaller chain.

The firm forecast 2013 earnings in the range of $2.10 to $2.18 per share on same-restaurant sales growth of 1.5 to 2.5 percent.

The company also said it plans to raise its prices next year, but not enough to offset food price inflation.

The third-quarter results were good: net income increased and revenue increased.

Financial Performance
Between 2007 and 2011, revenue increased from $1.51 billion to $1.76 billion. Net income increased from $74 million to $95.7 million. The net profit margin in 2011 was about 5 percent.

Revenue is on pace to increase this year compared to last year, however, net income is on pace to decline compared to last year.

The financial performance is good: revenue is increasing.

Financial Position
Cheesecake Factory had about $50 million in cash reported on the balance sheet at the end of the second quarter. A substantial portion of the firm's assets are plant, property and equipment.

Cheesecake factory doesn't have debt obligations listed on the balance sheet. The current ratio is roughly 2. Total equity is trending higher.

The financial position is solid: the firm doesn't have any debt.

Valuation
The short-term multiplier model valuations are off of their recent peak, the firm is nearing fairly valued. The absolute value of the multiplier model valuations suggests the firm is fairly valued. The price-sales ratio is 0.98 and the price-earnings ratio is 18.40.

Conclusion
Investors should accumulate shares of Cheesecaske Factory on a substantial decline in the share price. The firm can outperform the market on a non-risk adjusted basis.

Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial advisor. Christopher Grosvenor does not know your financial situation and ability to bear risk and thus his opinions may not be suitable for all investors.