Knobias Clip Report (10-24-2008) CAKE
Submitted By Knobias ClipReport
CAKE: Plunges to Multi-Year Low on Q3 Results and Soft Sales Projections
By Fain Hughes, fhughes@knobias.com
Shares of The Cheesecake Factory Inc. (CAKE) plunged to a multi-year low on Friday after the Company reported financial results for the third quarter ended on September 30, 2008. Total revenues increased approximately 8% to $405.1 million in the third quarter of fiscal 2008 from $375.5 million in the prior year third quarter. Diluted net income per share was $0.19 versus $0.26 per share a year ago. Analysts had expected net income of $0.27 per share for this most recent third quarter.
The Company expects total FY08 revenue growth of 6.5% versus last year. The Company expects Q4 revenue growth of flat to +1% and comparable sales in the -6% to -7% range versus the prior year.
David Overton, The Chairman and CEO, commented in a conference call, “Like many others in casual dining, our earnings were impacted by spikes in commodities and energy costs. These costs are now leveling out from their highs, and we are beginning to see some moderation in those pressures in Q4, Consumer spending remains tight, but we believe that we are positioned to compete effectively for the casual dining market. Our near term focus is on three area: stimulating sales, managing our margins and protecting our balance sheet.”
He continued, “We have implemented a number of initiatives to enhance our margin management, mostly related to our labor and utility costs. We have reduced our labor costs by about $5 million on an annual basis from our automated cook line systems. We will realize about $2 million in labor savings in FY08 from this effort alone. On the utility side, we continue to evaluate the benefit of a recently expanded program to manage our energy usage and utility costs. About 20% of our restaurants are on the program with plans to continue the rollout. We remain focused on driving sales and actively examining our infrastructure opportunities to streamline operations and cut costs without sacrificing guest service.”
Mr. Overton added, “We temporarily suspended our share repurchase program last week. Given the unprecedented economic climate, we decided that taking the conservative position of conserving cash was the most prudent and appropriate action at this time and gives us the most flexibility for the future. Due to this economic uncertainty, we also expect to open 3-5 new restaurants in 2009 rather than moving ahead with the 7-9 new restaurants that we initially projected. We are also building flexibility into our lease negotiations to give us the ability to delay opening dates until economic conditions may be more favorable.”
He concluded, “We continue to believe that the weakness that we are seeing is a macro-driven. We have confidence in our brand and believe our growing marketing efforts will only strengthen our brand. We have a significant market opportunity across all three of our concepts, and we will apply a high level of discipline to our site selection standards in a rational way. Our restaurants are healthy cash generators, and we will be prudent in our decisions on the best use of that cash.”
Wedbush downgraded shares of CAKE today to Hold from Buy on lower than expected Q3 results. The firm expects sales softness to continue and also lowered its price target to $9 from $12.
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