Fuller Plate Boosts Stock Of Restaurant Operator

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Casual dining may have taken a hit in recent months, but Cheesecake Factory Inc. is chugging along just fine.

The Calabasas restaurant chain bucked downward industry trends last week when it reported a small rise in earnings, which was enough to beat estimates and send its stock up 6 percent in one day. Shares closed at $45.32 on Oct. 24, pushing 12-month stock gains to 40 percent.

The company reported third quarter net income of $27.5 million (52 cents a share), a 1.2 percent increase from the same period a year earlier. Revenue rose 3 percent to $470 million, while same-store sales rose 1 percent. The results slightly beat analysts’ estimates of earnings of 51 cents a share on $469 million in revenue.

Those numbers might not seem like huge gains, but they were welcome news in an industry segment that has hit a rough patch. Publicly held casual-dining companies reported an average same-store sales drop of about 2 percent in the most recent quarter, according to analysts.

“I think in this environment, that’s considered a win,” said Conrad Lyon, analyst at West L.A.’s B. Riley & Co. “A lot of their peers have displayed much worse results and for them to continue to show positive signs of sales said a lot about the brand.”

Several notable Cheesecake Factory rivals have struggled in recent months, which analysts attributed to tightening disposable income of middle-class consumers. Darden Restaurants Inc., owner of Olive Garden and Red Lobster, saw earnings fall 37 percent in the most recent quarter, while sales at its flagship chains fell 4 percent and 5 percent, respectively. The parent company of Chili’s Grill & Bar also reported that same-store sales fell 2 percent.

Bryan Elliott, analyst at Raymond James & Associates Inc. in Atlanta, said Cheesecake Factory has been able to weather the storm due to a strong brand, real estate positioning and diversification of its menu.

The company did reveal a small, unexpected problem that might have a big impact on earnings: shrimp. Management announced an earnings outlook for fiscal 2014 of between $2.29 and $2.41 a share, below analyst estimates of $2.45. Accounting for the difference was the cost of shrimp, which is about 10 percent of the company’s cost of goods sold and which might rise 30 percent to 60 percent due to ongoing worldwide shortages.

“I’ve gotta say, we never asked them about shrimp prices before,” Lyon said. “We’ve never heard of it being an issue. It’s a temporary problem.”

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