Cheesecake Factory (CAKE) Stock Up On Q3 Earnings Beat

Shares of The Cheesecake Factory Inc. (NASDAQ:CAKE) rallied over 8% in after-hour trading on Oct 26, after the company reported better-than-expected third-quarter fiscal 2016 results.

Notably, the company also raised its earnings guidance for full-year fiscal 2016.

Earnings and Revenue Discussion

The company's adjusted earnings per share (EPS) of 70 cents beat the Zacks Consensus Estimate of 61 cents by 14.8% and increased 18.6% year over year on the back of a higher top line and lower share count.

Sales of $560.0 million surpassed the Zacks Consensus Estimate of $556 million by 0.7% and were up 6.3% on a year-over-year basis.

Inside the Headlines

Comps at Cheesecake Factory restaurants increased 1.7%, higher than 0.3% growth registered last quarter but lower than the year-ago quarter growth of 2.2%. Menu price increase of 2.6% and positive mix of 0.5% drove comps, partly offset by a 1.4% decline in traffic.

Cost of sales ratio decreased 90 basis points (bps) year over year to 23.0%. This was primarily attributable to lower seafood, groceries, dairy and poultry costs. Labor expense ratio was 33.3%, 60 bps higher year over year due to high hourly wages.

General and administrative expenses accounted for 6.4% of revenues in the third quarter as compared to the prior-year quarter level of 6.3%. Pre-opening expenses were roughly $2 million, down nearly 54% year over year.

Fourth-Quarter Fiscal 2016 Outlook

For the fourth quarter, adjusted earnings per share is guided in the range of 65 cents to 68 cents, on the back of expected comps growth of between 1% and 2% at Cheesecake Factory restaurants.

Fiscal 2016 Guidance

Cheesecake Factory raised the earnings guidance for fiscal 2016 on the back of a solid bottom-line performance in the third quarter.

The company now expects adjusted earnings per share in the range of $2.81 to $2.84, up from the prior guidance of 2.70 to $2.76.

Meanwhile, comps are projected in the band of 1—1.5%% instead of the earlier guidance of 1%.

Additionally, the company expects an increase in operating margins for the full year. Meanwhile, total capital expenditures are expected in the range of $100 million to $105 million ($100–$110 million earlier) for fiscal 2016 owing to eight planned domestic openings this year and a few scheduled for early 2017.

Fiscal 2017 Guidance

For fiscal 2017, Cheesecake Factory expects adjusted earnings per share in the range of $2.95 to $3.11, on the back of expected comps growth of 1–2%.

Meanwhile, capital expenditures for the year are anticipated in the band of $125–$140 million, including eight to nine planned domestic openings and a few potential openings for early 2018.

Zacks Rank & Stocks to Consider

Cheesecake Factory has a Zacks Rank #4 (Sell). Better-ranked stocks in this sector include Domino's Pizza, Inc. (NYSE:DPZ) , Wingstop Inc. (NASDAQ:WING) and Potbelly Corporation (NASDAQ:PBPB) . Each of the three stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Domino’s 2016 earnings moved up 2.4% over the last 60 days. Meanwhile, for full-year 2016, EPS is expected to improve 22.8%.

Wingstop posted positive earnings surprises in all the last four quarters, with an average beat of 15.46%. Further, for 2016, EPS is expected to grow 18.1%.

Potbelly’s trailing four-quarter average earnings surprise stands at a positive 11.81%. For 2016, the company’s EPS is expected to increase 26.7%.

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