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This Restaurant Looks Like a Good Value Investment

July 22, 2014 | About:
jaggom

jaggom

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As per Blackbox Intelligence, second from last quarter sales and movement for the restaurant industry in the U.s. were feeble. Vast same-store sales, or comps, were a negative 0.2%. This signifies that the sluggish environment confronted by the restaurant industry is proceeding, as three out of the last four quarters have shown a decrease in same-store sales .

This vast pattern is understandable because cash-strapped consumers favor spending less on consuming outside. In the midst of such an extreme scenario, The Cheesecake Factory's (CAKE) second from last quarter results were very surprising. The organization reported consolidated comps development of 0.8%.

This was fifteenth consecutive quarter of positive same store sales for Cheesecake Factory. This is wonderful considering that in three out of the last four quarters, same-store sale development has been negative across the industry, as per Blackbox Intelligence. The development at Cheesecake Factory was, nonetheless, miniscule when contrasted with 6.2% at Chipotle Mexican Grill (CMG) and 1.7% at Panera Bread (PNRA).

Notwithstanding, of the three, Panera has suffered the most, and we shall dig into reasons behind this in some time. At the same time before that, we should examine Cheesecake Factory.

Cheesecake's performance

Cheesecake Factory's comps developed inside the guided scope of level to 1%, and this prompted revenue development of 3.5% year over year to $469.7 million . Analysts had expected $469 million. Despite a change in gross margin because of positive sustenance costs, operating margin in the second from last quarter fell 50 basis points (bps) year over year to 8.2% because of higher operating costs. The organization reported a 6.1% year over year bounce in adjusted earnings, which came in at $0.51 per share.

At the end of second from last quarter, Cheesecake Factory operated 176 restaurants, which incorporated two new ones that were included amid the quarter. Going ahead, it plans to open nine new organization claimed restaurants versus its earlier direction of 8-10 openings.

The Cheesecake Factory is investor cordial and amid the second from last quarter, the organization purchased back 2.1 million shares of its basic stock at a cost of $90.2 million. Amid the final quarter, the organization targets to spend as much as $65 million for share repurchases. This is an extra $30 million of capital assignment contrasted with its previous direction.

The Cheesecake Factory posted great second from last quarter results and this is an empowering sign in a depressed industry. The share repurchase will also instill a great deal of optimism in investors and this is obvious from the way the share cost has been climbing.

Panera and Chipotle - Two separate stories

As contrasted with The Cheesecake Factory, Panera Bread has struggled after its second from last quarter results. Panera has missed analysts' estimates on comps for three successive quarters. In second from last quarter, it missed revenue estimates and it direction on comps, while also lessening its earnings direction.

Analysts are not expecting much development from Panera. The crevice between Panera's trailing P/E of 24 and forward P/E of 21.7 is not significant. Thus, investors should consider different alternatives, as Panera doesn't resemble a decent wager at current levels and administration isn't excessively sure about how the organization may perform going ahead as it withheld its fiscal 2014 direction.

Then again, Chipotle Mexican Grill has been having some fantastic luck. Energized by strong movement, Chipotle's sales increased 18% versus the same quarter last year to $826.9 million , beating analyst estimates. The organization reported 17.2% year over year bounce in earnings to $2.66 per share also.

Going ahead, I feel that Chipotle's GMO free activity will prompt great results as consumers are getting to be conscious about good dieting. What's more, with new menu items executed across its whole chain, Chipotle should see higher sales. On the again of strong second from last quarter results, Chipotle increased its comps direction, signifying better times ahead.

Last words

Cheesecake has done well this year, thus has Chipotle. Cheesecake's results enhanced in the previous quarter and administration has been returning cash to shareholders through repurchases. Also, Cheesecake Factory also pays out a profit that yields 1.20% every year. It is also cheaper with a trailing P/E of 25, when contrasted with Chipotle's expensive P/E proportion of 54.21.

So, conservative investors should consider Cheesecake for their portfolio since the organization isn't excessively expensive, it is conveying worth to shareholders, and its earnings are required to develop at a CAGR of 14% through the following five years.


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