CAKE – HEADLINE NUMBERS DECEIVE

CAKE remains on the Hedgeye best ideas list as a LONG.

 

The company reported disappointing results relative to expectations yesterday, but the headline numbers look worse than the underlying fundamentals would suggest. 

 

CAKE reported 2Q13 EPS results that were $0.03 lower than consensus along with a slight top line miss of -0.73%.  Same-store sales also fell short of expectations (+0.8% versus +1.7% consensus), as Cheesecake Factory comparable sales (0.9% versus +1.8% consensus) and Grand Lux Cafe comparable sales (+0.1% versus +0.7% consensus) both disappointed.

 

Management cited weather and slower industry trends as the two main drivers of weaker sales than expected in the quarter.  We don’t like to see anyone pull the weather card, but CAKE’s reasoning holds more legitimacy than that of some of its peers as its restaurants struggled to utilize their patio space at levels seen in the past. 

 

While industry trends are slowing, CAKE’s comparable sales have outpaced the industry for at least 18 months and we expect this trend to continue.  Although 3Q13 should be challenging due to slowing industry trends and a tough comp, we don’t see any fundamental issues within the business.  We expect sales to rebound in 4Q13 and carry on into 2014.  Management acknowledged that they will not make any desperate or unadvised attempts to boost sales in 2H13. 

 

Rather, they will continue to focus on the core of the business and building the brand for the long-term through new restaurants (at “A+” sites), menu innovation, quality food, and high service standards.

 

Below are some of our thoughts on 2Q13 results.

 

 

What We Liked

  • Increasing the quarterly dividend by 17%
  • Plan to repurchase up to $125 million worth of shares in 2H13
  • Full-year development plans remain on track to open 8-10 new restaurants
  • Anticipate a 50bps year-over-year improvement in FY13 operating margin
  • Expect full-year cost of sales to be lower than previously forecast due to moderate commodity cost inflation and favorable dairy prices
  • Management appears unfazed by the disappointing 2Q13 numbers and remains committed to their core business values

 

Red Flags

  • 2Q13 traffic was down -0.8%
  • Management lowered full-year EPS guidance down to $2.10-$2.15 from $2.12-$2.18
  • Softening industry trends and a difficult year-over-year comp are likely to be headwinds in 3Q13
  • Labor and other operating costs were up 10bps and 30bps year-over-year, respectively 

 

CAKE – HEADLINE NUMBERS DECEIVE - CAKE MONEY

 

 

 

Howard Penney

Managing Director

 


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more