Stock in the Cheesecake Factory Inc. has fallen steadily since the Calabasas-based restaurant chain released second-quarter results that beat analysts’ expectations on July 27. The sharp drop, more than 20 percent at the time of publication, comes after six months of consistent growth despite the tumultuous business year during the pandemic.Shares closed at $44.59 on Aug. 11.Although the company performed well, it said the cost of sales inflation is expected to be 3 percent in the last half of the year, which some analysts cited for the drop in stock prices. Also, it anticipates greater expenses in business reinvestment, with plans to open 14 new locations by the end of this year.Earnings for the quarter ended June 29 were $17 million, up from a loss of $70 million in last year’s second quarter. On a per share basis, adjusted earnings in the second quarter were 80 cents, which beat analysts’ expectations by 5 cents. In last year’s second quarter, earnings per share were -90 cents.Revenue in the quarter was $769 million, up nearly 3 percent from analysts’ expectations of $748 million. Revenue was $296 million in the second quarter of last year and $603 million in the pre-pandemic second quarter of fiscal 2019.“Comparable sales at the Cheesecake Factory restaurants far outpaced pre-COVID levels during the second quarter and we leveraged the sales to drive solid bottom-line performance,” Chief Executive David Overton said in a statement. “Sales across our concepts further strengthened early in the third quarter as nearly all of our restaurants are now operating with no indoor dining restrictions.”Comparable restaurant sales at the Cheesecake Factory restaurants increased 150 percent year-over-year in the second quarter, according to the company’s statement. Relative to the second quarter of fiscal 2019, comparable restaurant sales increased 7.8 percent.“Additionally, we opened three new restaurants during the second quarter and with our most recent opening last week, we are on track to meet our development objective to open as many as 14 new restaurants across our concepts this year,” Overton said in his statement.Cost increasesAlong with increasing sales, the company has seen a continued rise in operating costs partly because of seasonal sales shifts and anticipated wage inflation.“Following the benign commodity inflation we experienced in the first half of the year, we currently expect total cost of sales inflation of approximately 3 percent for the back half of the year,” Matt Clark, chief financial officer of the Calabasas-based restaurant chain, said in a conference call to discuss the second quarter. “We currently have 3 percent pricing in the Cheesecake Factory menu and plan to remain at that level for the second half of the year. We believe this is sufficient to cover the inflationary factors.”Analysts have maintained that the stock is overweight, despite a restaurant portfolio performing as well or better than most direct competitors.
“The Cheesecake Factory results validate our earlier premise, the notion that sales are not the restaurant industry’s issue, especially compared to labor, supply chain and value propositions relative to menu price increases. On those latter points, the company’s concepts are fully staffed, are operating on a full menu expression and have relatively less price across channels,” Joshua Long and Nicole Regan, analysts at Piper Sandler, wrote in a report after the quarterly results were released. “While sales are slightly above FY19 levels (also semi-standard across the segment), we have yet to see equilibrium by channel, notably on- vs. off-premises, which is a true statement for the industry at large.” Cheesecake Factory owns and operates 301 restaurants in the U.S. and Canada under brands including Cheesecake Factory and North Italia. Internationally, 28 Cheesecake Factory restaurants operate under licensing agreements.
Inflation Takes Toll on Cheesecake’s Share Price
