Cheesecake Factory Rises As Expected, Appeases Blair's Appetite

In a report rolled out Thursday, analysts at William Blair provided a preview of Cheesecake Factory Inc CAKE's first quarter financial results, to be announced next Wednesday. They expect EPS to meet their estimate of $0.48 -- the Street is anticipating $0.49 compared with Estimize's consensus of $0.50 -- and within guidance of $0.47-$0.50.

Regarding same-store sales, the firm’s projections point towards an increase of 3 to 3.5 percent, in-line with consensus and within guidance. This would mark Cheesecake Factory’s largest comp gain since 2005. The analysts add, “inclusive of roughly 2% price, we expect traffic to rise 1.0% to 1.5%, marking the company’s first inflection into positive traffic territory since 2012 courtesy of both an earlier Easter and more benign winter across much of the country (weather penalized the first quarter of 2014 by 130 basis points).”

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However, William Blair models a 10-basis-point fall in operating margin to 6.8 percent, on the back of “higher cost of sales and group medical costs (…) partly offset by labor leverage.” The cost of sales is expected to surge 20 basis points to 25 percent, “as higher beef and chicken costs are partly offset by lower dairy and seafood.” They also project “flattish labor at 33.1% despite higher group medical costs (40 to 60 basis points) and overall wage inflation.”

The analysts expect management to reiterate guidance of 11 new company-owned stores in 2015, and international expansion plans to remain untouched “calling for as many as four new restaurants in the Middle East and Mexico under its licensing agreements versus a year-end count of eight international licensed locations.” Nonetheless, the anlaysts do expect EPS guidance to be cut from $2.20 to $2.08 for 2015.

William Blair rates shares of Cheesecake Factory with an Outperform.