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Cheesecake Factory (CAKE) Q3 Earnings Miss, Stock Falls

Shares of The Cheesecake Factory Inc. CAKE declined 7% in afterhours trading on Nov 1, after the company reported lower-than-expected third-quarter fiscal 2017 results.

Further, a lowered fiscal 2017 outlook owing to the prevailing challenging restaurant environment and the impact from weather events, led to the slump in the stock price.

Earnings and Revenue Discussion

Adjusted earnings of 56 cents per share missed the Zacks Consensus Estimate of 60 cents by 6.7%. Further, earnings declined 20% year over year.

Sales of $555.4 million fell short of the Zacks Consensus Estimate of $562.5 million by 1.3% and declined 0.8% year over year.

The Cheesecake Factory Incorporated Price, Consensus and EPS Surprise

Inside the Headlines

Comps at Cheesecake Factory restaurants declined 2.3%, whereas the year-ago quarter marked a 1.7% growth in comps and the preceding quarter marked a 0.5% decline. Menu price increase of 2.4% was more than offset by a 4.3% decline in traffic and negative mix of 0.4%.

We note that in August, the company stated that it expects comps decline of roughly 1-2% at Cheesecake Factory restaurants in third-quarter fiscal 2017.

In fact, the hurricanes (Harvey, Irma and Maria) had a 0.8% negative impact on the company’s comps. Management noted that excluding the significant weather impact, sales and earnings results were in line with their expectations. Also, continuous investment in improving guest experiences contributed to the stabilization of the underlying sales trend.

Cost of sales ratio decreased 10 basis points (bps) year over year to 22.9%. Meanwhile, labor expense ratio was 34.9%, 160 bps higher year over year. About 35 bps of this increase is attributable to the hurricanes and the rest primarily to elevated hourly wage rates.

General and administrative expenses accounted for 6.4% of revenues in the fiscal third quarter, remaining flat year over year. Notably, pre-opening expenses were roughly $3.37 million, up from $1.98 million in the year-ago quarter.

Fourth-Quarter Fiscal 2017 Outlook

For the fiscal fourth quarter, adjusted earnings per share are guided in the range of 50 cents to 54 cents based on an anticipated comps outlook in the band of down 1% to flat at Cheesecake Factory restaurants.

Fiscal 2017 Guidance

The company slashed its fiscal 2017 adjusted earnings per share projection and now expects earnings in the range of $2.57 and $2.61 compared with $2.62 to $2.70, guided earlier. The Zacks Consensus Estimate for fiscal 2017 earnings is pegged at $2.65.

Meanwhile, the company continues to expect comps to decline approximately 1%.

Capital expenditures for the year are now projected in the range of $110-$115 million (earlier $125-$135 million).

Additionally, Cheesecake Factory continues to expect to open eight company-owned restaurants in fiscal 2017.

Zacks Rank & Peer Releases

Cheesecake Factory carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McDonald's Corp. MCD reported third-quarter adjusted earnings per share of $1.76 beating the Zacks Consensus Estimate of $1.75 by 0.6%. Earnings also increased 8.6% year over year.

Buffalo Wild Wings, Inc.’s BWLD third-quarter 2017 adjusted earnings were $1.36 per share, which outpaced the Zacks Consensus Estimate of 78 cents by 74.4%. Also, the bottom line compared favorably with the year-ago quarter figure of $1.23 per share by 10.6%.

In third-quarter 2017, Domino’s Pizza, Inc. DPZ posted earnings of $1.27 per share that outpaced the Zacks Consensus Estimate of $1.22 by 4.1%. Further, earnings improved 32.3% year over year.

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