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CAKE reported stronger than expected earnings of $0.31 per share versus the street’s $0.25 per share estimate and management’s guidance of $0.23-$0.25 per share.  Same-store sales turned positive in the quarter at both Cheesecake Factory and the Grand Lux Café with blended same-store sales coming in +2.8% (better than management’s guidance of flat to +1%, including a 1% expected benefit from increased gift card redemptions).  This better comparable sales result implies a 370 bp acceleration in sequential 2-year average trends from the prior quarter, which the company attributed to continued improvements in traffic trends.  Operating margin improved about 250 bps YOY during the quarter.

Management does not provide guidance until the conference call, but based on these better than expected results, it would seem that the current full-year outlook for $1.16-$1.24 per share in earnings and -1% to flat same-store sales growth is going higher.  Based on the 1Q10 earnings beat, we would expect FY10 EPS guidance to move to at least $1.22-$1.30 (the street is already at $1.27).

The stock is initially indicating lower….Remember when less bad was good.  Based on 1Q10 earnings to date, the new question is how good is good?

Howard Penney

Managing Director