Stocks To Watch Next Week: US Earnings Calendar

Based in Calabasas Hills, California, Cheesecake Factory Inc.(CAKE: 29.20+2.13 +7.87%) reported earnings of 37 cents a share in the third quarter of fiscal 2010, which surpassed the Zacks Consensus Estimate of 34 cents. The earnings also soared 37% year over year from the prior-year earnings of 27 cents a share.

The better-than-expected results were driven by comparable-store sales growth, higher traffic and effective cost management.

Cheesecake’s top line showed a growth of 4.4% year over year to $418.4 million,outperforming the Zacks Consensus Estimate of $413.0 million. The upside in revenue was perked up by higher comparable sales growth. The company is also focusing on sales driven initiatives like new menu offerings, value-added service and improved food quality to attract customers.

Comparable-store sales rose 2.8% in the quarter and are positive for the third consecutive quarter as the economy is reviving resulting in an increase in consumer demand. By concept, comparable store sales jumped 2.9% and 1.4% at the Cheesecake Factory and Grand Lux Cafe, respectively.

Operating margin climbed 70 basis points from the year-ago quarter to 7.5%, reflecting a 10-basis point (bps) drop in labor costs, 60-bp decline in other operating expense, 30-bp fall in general and administrative expenses and a 40-bp dip in depreciation and amortization cost, partially offset by a 50-bp rise in cost of sales.

Store Update

During the quarter, the company opened one restaurant thus completing its target of opening three new restaurants in fiscal 2010. The company currently operates 163 restaurants. 

Financial Position

Cheesecake ended the quarter with a cash balance of $59.8 million and repurchased 0.9 million shares in fiscal 2010, at an average price of $21.2 million.

The company’s revolving credit facility balance was $70 million at the end of the quarter, after repayment of $30 million of debt in the third quarter of 2010.

Our Take

As the economy is showing signs of improvement, we believe Cheesecake will be able generate improved earnings.

One of Cheesecake’s primary competitors, BJ’s Restaurants Inc. (BJRI: 33.94+5.07 +17.56%) has reported earnings of 20 cents per share for its third quarter 2010, which outperformed the Zacks Consensus Estimate by 5 cents. The earnings increased on comparable-store sales growth and higher traffic, both of which increased for the third consecutive quarter.