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Why The Cheesecake Factory Is Trading near Its 52-Week Low

PART:
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Part 3
Why The Cheesecake Factory Is Trading near Its 52-Week Low PART 3 OF 4

Analysts Expect The Cheesecake Factory’s Earnings to Fall

EPS estimates

After posting weak 2Q17 earnings, The Cheesecake Factory (CAKE) lowered its 2017 EPS (earnings per share) guidance to $2.62–$2.70 from the earlier guidance of $2.93–$3.02. For the next four quarters, analysts expect the company to post EPS of $2.68, which represents a 6.6% fall from $2.87 in the same four quarters the previous year.

Analysts Expect The Cheesecake Factory&#8217;s Earnings to Fall

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What impacts the earnings?

Analysts expect the fall in The Cheesecake Factory’s EBIT (earnings before interest and tax) margins to offset the positive effect of revenue growth and share repurchases. The company is expected to post lower earnings in the next four quarters. Analysts expect The Cheesecake Factory’s EBIT margins to fall from 8.4% to 7.5%. The rise in the cost of sales, labor, G&A (general and administrative) expenses, and D&A (depreciation and amortization) expenses is expected to lower The Cheesecake Factory’s EBIT margins. Management expects the commodity price to rise 2% in the last two quarters of 2017, while the labor wages are expected to rise 5%.

Despite cost-lowering initiatives, analysts expect the G&A expenses to increase due to sales deleverage from negative same-store sale growth. Also, opening new restaurants, investing in technological advancements, and expanding its delivery services are expected to increase The Cheesecake Factory’s D&A expenses.

Peer comparisons

For the next four quarters, analysts expect Texas Roadhouse (TXRH), Brinker International (EAT), and Buffalo Wild Wings (BWLD) to post EPS growth of 13.9%, 0.6%, and 24.8%, respectively.

In the next part, we’ll look at The Cheesecake Factory’s valuation multiple and analysts’ recommendations.

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