CAKE ON TOP OF ITS GAME

The Cheesecake Factory remains on Hedgeye’s Best Ideas List as one of our favorite ways to play our macro team’s bullish view on US consumption.

 

The Cheesecake Factory reported 1Q EPS of $0.47, easily beating the $0.42.  As explained on the earnings call, about $0.03 of the EPS upside reflected a greater-than-expected 2Q to 1Q sales shift related to an earlier Easter and related spring breaks.

 

Up and down the P&L, food costs, labor costs and G&A were well controlled. This contributed to what was a high-quality earnings quarter.

 

Same store sales rose 1.4% (Cheesecake up 1.6% and Grand Lux Café down 90bps) including a 50 bps benefit from the spring break shift.  The company also mentioned 60 basis points of negative weather impact, centered in the Northeast. The two year average trend at The Cheesecake Factory and Grand Lux both improved sequentially from 4Q12.

 

We continue to believe that the international story is underappreciated by the street. On the call, the company emphasized the strong performance of its three international units, with higher than planned volumes being delivered at these locations.  Three additional Middle East locations are due to open this year. Management stated that for each Middle Eastern restaurant that open for a full year, it expects $0.01 in incremental annual earnings per share.

 

The company lowered expectations for 2Q13, due to the sales shift mentioned above, and raised its full year slightly. The midpoint of the EPS guidance range was raised by $0.01. There was nothing in this quarter to suggest that the story has changed and we are keeping “Long CAKE” on the Hedgeye Best Ideas list.

 

CAKE ON TOP OF ITS GAME - cake pod 1

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst


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