Cheesecake Left Out in The Cold

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Cheesecake Factory’s announcement of preliminary fourth quarter results last week gave investors a bit of postholiday indigestion.

The Calabasas-based eatery chain reported a 0.9 percent increase for same-store sales compared with the last quarter of 2009. That’s seemingly respectable – except for the fact the company’s guidance had projected sales gains in the 1.5 percent-3 percent range.

The day of the announcement, Jan. 11, Cheesecake stock declined nearly 8 percent to $28.90. It recovered somewhat to close at $30 on Jan. 13.

The company blamed its performance on bad weather and the fact that Christmas and New Year’s fell on weekends, resulting in fewer days off work for consumers.

Sharon Zackfia, an analyst at William Blair & Co. in Chicago, wrote in a Jan. 11 research note that the “comparables would have still been at the lower end of expectations, even without the impact of weather.”

However, Bryan Elliott, an analyst with Raymond James in Atlanta, said that for once there is some truth to the “bad weather” explanation often cited for poor quarterly results.

“If I need a new pair of shoes, I might not get it due to bad weather, but eventually I’ll make that purchase. With a restaurant, that meal will never be sold,” said Elliott, who continues to rate the stock a “buy” and has a $33 target share price.

Elliott also noted that there is an upside to the stock since the new stores have performed well, and Cheesecake only opened one restaurant last year to bring its total to 163. He expects the company to open eight this year.

Zackfia also said in her research note that new restaurants should boost revenue.

“We continue to like Cheesecake Factory over the longer term, because of a reacceleration in new unit development and the opportunity to recapture sales that were lost in the downturn,” her note said.

David Tarantino, an analyst with Robert W. Baird & Co. in Milwaukee, believes Cheesecake could eventually add 200 more restaurants, not including international expansion.

“Low existing penetration and limited direct competition suggest healthy potential for Cheesecake Factory,” said Tarantino in a Jan. 11 research note that rated the stock a “buy” with a target price of $36.

The company did not response to a request for comment. However, in the preliminary fourth quarter announcement, Chief Executive David Overton said “we remain comfortable with our expectations for 2011, the planned expansion of our brands and our ability to continue to grow shareholder value in 2011 and beyond.”

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