The Cheesecake Factory, Inc. (CAKE)

TMF1000 (34.10) Submitted: 12/27/06 2:51 PM

Recs: 4 | Rec This

Hi DavidK
I thought I would add this here too.

Business:

CheeseCake Factory began in 1972 when Oscar and Evelyn Overton founded a small bakery in Lost Angeles. Their son, David Overton opened the first Cheesecake Factory restaurant in Beverly Hills California in 1978. They have since opened 110 upscale full service casual dining restaurants and 8 Grand Lux Café restaurants. Their signature CheeseCakes, of which they serve 40 varieties are their specialty and one of the main draws.

They also have a fully stocked bar. Alcohol sales represented about 13% of revenues. Desserts represent about 15% of their sales. They also have a distinct bakery business segment that produces 250 dessert products fifty which are cheesecakes. These deserts are sold to the restaurants but the majority of their sales come from large warehouse purchases like Sam's and other third party resellers of their desserts. Darden Group, BJ Wholesale and Starbucks are listed as customers.

The CheeseCake Factory has 200 menu items and the average price to dine is about $17.00. I personally have never seen a Grand Lux Café so I don't have a clue what makes them different. In June of 2007, they expect to open a restaurant that serves Asian cuisine. The multiple concept business model is best reflected by Darden Group (DRI).

Other notes of interest:
The second and third quarter is typically their strongest. They also will see the affects of slower mall traffic where many of their stores are located.

February 7, 2006 4Q:2005
** 4Q: revenues up 23% to $328.3 million
** Same store sales up 0.5%
** Same store sales of Grand Lux Café up 3.8%
** Net income increased 26% to $23.4 million
** Diluted net income per share up 26% to $0.29
** Cash equivalents, marketable securities $177,974,000 and no debt
** Operating cash flow was $165,512,000 million with capital expenditures of $170,162,000
** Total revenues for Fiscal 2005 $1.2 billion
** Same store sales up 1.6% at Cheesecake factory
** Same store sales up 3.3% at the Grand Lux Café
** Net income up 28% to $87.5 million
** Diluted net income per share up 27% to $1.09
** ** Note for financial quarter 4Q:2005 and fiscal 2005
The Company has provided non-GAAP measurements which present the fourth quarter year-over-year change in net income and diluted net income per share excluding the impact of a $2.0 million insurance settlement received in the fourth quarter of fiscal 2004. For the full year, the year-over-year change in net income and diluted net income per share excludes the net impact of a $2.5 million reserve established in the prior year to accrue for estimated settlement costs and expenses associated with a lawsuit that was pending at the time, partially offset by the insurance settlement discussed above.

** 103 stores and 7 Grand Lux stores
** Diluted shares 80,467,000
** Trading range between February 7, 2006 and April 25, 2006 was $33.04 and $37.58: PE Range was 30.31 to 34.47

April 25, 2006 1Q:2006
** Revenues up 14% to $306.4 million from $268.2 million last year
The first quarter of fiscal 2005 included two significant holidays for the Company, New Year's and Easter week, neither of which were included in the comparable period of the current fiscal year.
** Net income and diluted net income per share were $19.3 million and $0.24, respectively. Before the impact of stock option expensing, net income increased 17% to $22.1 million and diluted net income per share increased 13% to $0.27: Stock options represented $0.03 per quarter, not expensed last year. Last year, the company made $0.24 without expensing options.
** TTM $1.09
** 105 CheeseCake Factories 7 Grand Lux
** Diluted share count 80,540,000
**When the 1Q:2006 earnings were announced the stock dropped $4.00 to close the day at $31.43.
** Trading range from April 25, 2006 to November 30, 2006 was $21.65 and $33.45: PE Range was 19.86 and 30.68

June 27, 2006, the company reported they expected flat same store sales. The price dropped a couple of dollars to close the next day at $25.78. _ PE ratio 23.65.

July 18, 2006 – the company reported preliminary 2nd quarter results (unaudited)
** Revenues $322.2 million up 12% from $288.3 million last year
** same store sales decreased 0.08% in the second quarter
** Same stores sales decreased 1.2% but increased 5.5% at Grand Lux

August 21, 2006, the company gets a delisting warning from the Nasdaq because of late filing of a 10Q due to the ongoing option review.

October 9, 2006– the company reported preliminary 3rd quarter results (unaudited)
** Revenues up 11% to $325 million from $292.8 million
** Same stores sales decreased 1.6% - a 2.2% decrease in Cheesecake factory and an increase of 6.7% for Grand Lux
** 110 CheeseCake Factory stores 8 Grand Lux restaurants

November 30, 2006, the company finally released its fiscal 2Q: and 3Q: reports:
** 2Q revenues $322.6 million up from $288.5 million last year
** Net income was $23.4 million excluding option expense the net income was $26.4 million
** Net income per diluted share was $0.30 and $0.33 before options. Last year, the company made $0.30 per share. Last year they made $0.29 per diluted share
** Same Store sales down $0.8% as The Cheesecake same store sales down 1.2% while Grand Lux Café was up 5.5%.
** Diluted shares 79,467,000
** TTM $1.10
*** 3Q:2006 results
** Revenues up 11% to $325.3 million up from $294 million last year
** Net income $18.1 million
** Net income per share was $0.23. Last year it was $0.27 per share
** TTM $1.06
** Diluted share count 78,695,000
** Same store sales decreased 1.6% while CheeseCake Factory stores were down 2.1% and Grand Lux were up 6.7%.
** They also provided this guidance for the fourth quarter:
Revenues in the range of $351 million to $354 million and diluted net income per share in the range of $0.22 to $0.24


As of December they are in compliance with the Nasdaq:
They reached a low stock price of $24.77 on December 20, 2006.

ThompsonFn estimates:
Fiscal 2006 $1.00
Fiscal 4Q:2006 $0.23
Fiscal 2007 $1.22

Conclusion:

The CheeseCake Factory has had a rough year. Option review forced the report last 10Qs which got them a warning of delisting from the Nasdaq. They are in compliance now and things are back to normal in that regard. However, same store sales are decreasing for the CheeseCake Factory stores though doing well for their newer Grand Lux concepts.

Earnings are expected to go down further in the fourth quarter, which will give them $1.00 in TTM earnings for the year. Last year they made $1.09 per share. They also expensed options this year. Without options, and if they expensed them last year, they would have reported slightly higher earnings for the year. So, the company's business is growing, just slower than in the past.

There is room for growth for both of their restaurant concepts and the Asian concept is a wild card at this point. It is unlikely the PE ratio will drop below 20, so picking up shares in that area would make a good target point for purchases.




February 7, 2006 4Q:2005 press release: http://tinyurl.com/yebqpn
April 25, 2006 1Q:2006 http://tinyurl.com/yk5g8z

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