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The Cheesecake Factory Reports Results for Second Quarter of Fiscal 2010

2010-07-26

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Restaurant News Resource Total revenues were $418.9 million in the second quarter of fiscal 2010 as compared to $407.9 million in the prior year second quarter.

The Cheesecake Factory Incorporated (NASDAQ: CAKE) reported financial results for the second quarter of fiscal 2010, which ended on June 29, 2010.

“Consumers are more discerning today than ever before about their dining out choices and are looking for menu innovation and food quality, a high level of guest service, and value. Our concepts deliver the overall experience that guests are looking for.”

Total revenues were $418.9 million in the second quarter of fiscal 2010 as compared to $407.9 million in the prior year second quarter. Net income and diluted net income per share were $19.2 million and $0.32, respectively.

In the second quarter of fiscal 2010, the Company made a $7.4 million, pre-tax payment to unwind the remaining $100 million interest rate collar on its revolving credit facility balance. This reduced reported diluted net income per share by approximately $0.07. Excluding this item, net income was $23.7 million and diluted net income per share was $0.39.

Operating Results

Comparable restaurant sales at The Cheesecake Factory and Grand Lux Cafe increased 1.6% in the second quarter of fiscal 2010 from the second quarter of the prior year. By concept, comparable restaurant sales in the second quarter of fiscal 2010 increased 1.6% and 0.9% at The Cheesecake Factory and Grand Lux Cafe, respectively, from the second quarter of the prior year.

“Despite a still sluggish economy, we delivered our second consecutive quarter of positive comparable restaurant sales. Our performance continues to provide a clear point of differentiation for us relative to the overall casual dining industry, as we again experienced solidly positive guest traffic during the quarter,” said David Overton, Chairman and CEO. “Consumers are more discerning today than ever before about their dining out choices and are looking for menu innovation and food quality, a high level of guest service, and value. Our concepts deliver the overall experience that guests are looking for.

“As our revenues grow, we are managing our business to retain the efficiencies from the cost management initiatives implemented last year. Leveraging our leaner infrastructure is helping us make consistent progress on our objective to improve operating margins back toward historical levels. This discipline is also evident in our balance sheet, which continues to strengthen. We further reduced our debt by $30 million this quarter, in addition to maintaining a solid cash balance. We are a healthier company today than we were a year ago and well positioned to capitalize on the eventual upturn in the economy,” concluded Overton.

Development

As planned, the Company expects to open one additional The Cheesecake Factory restaurant in fiscal 2010, during the Company’s third quarter.

Capital Allocation

The Company continues to execute its capital allocation strategy and repurchased 670,090 shares of its common stock during the second quarter of fiscal 2010 at a cost of approximately $17.4 million. Year-to-date, the Company has repurchased 1,157,158 shares of its common stock at a total cost of approximately $30.0 million.

The Cheesecake Factory Incorporated and Subsidiaries Consolidated Financial Statements (unaudited; in thousands, except per share and statistical data)

	13 Weeks Ended						13 Weeks Ended					26 Weeks Ended						26 Weeks Ended
Consolidated Statements of Operations	June 29, 2010						June 30, 2009					June 29, 2010						June 30, 2009
	Amounts			Percent of Revenue			Amounts		Percent of Revenue			Amounts				Percent of Revenue		Amounts				Percent of Revenue
Revenues	$	418,909			100.0	%	$407,944			100.0	%		$	824,342		100.0	%		$	800,738		100.0	%
Costs and expenses:
Cost of sales		102,752			24.5	%	99,284			24.3	%			201,355		24.5	%			197,370		24.6	%
Labor expenses		136,038			32.5	%	135,143			33.1	%			271,207		32.9	%			268,383		33.5	%
Other operating costs and expenses		100,391			24.0	%	99,259			24.3	%			199,702		24.2	%			201,013		25.1	%
General and administrative expenses		23,766			5.7	%	26,075			6.5	%			47,190		5.7	%			47,485		5.9	%
Depreciation and amortization expenses		18,026			4.3	%	18,755			4.6	%			36,181		4.4	%			37,358		4.7	%
Preopening costs		641			0.1	%	469			0.1	%			2,735		0.3	%			2,189		0.3	%
Total costs and expenses		381,614			91.1	%	378,985			92.9	%			758,370		92.0	%			753,798		94.1	%
Income from operations		37,295			8.9	%	28,959			7.1	%			65,972		8.0	%			46,940		5.9	%
Interest expense		(10,547	)		(2.5	)%	(7,459	)		(1.8	)%			(13,556	)	(1.7	)%			(12,489	)	(1.6	)%
Interest income		17			–		101			–				168		–				309		–
Other income, net		191			–		630			0.1	%			537		0.1	%			455		0.1	%
Income before income taxes		26,956			6.4	%	22,231			5.4	%			53,121		6.4	%			35,215		4.4	%
Income tax provision		7,727			1.8	%	5,662			1.3	%			15,226		1.8	%			8,627		1.1	%
Net income	$	19,229			4.6	%	$ 16,569			4.1	%		$	37,895		4.6	%		$	26,588		3.3	%

Basic net income per share	$	0.32					$ 0.28						$	0.64					$	0.45
Basic weighted average shares outstanding		59,238					59,337							59,261						59,326

Diluted net income per share	$	0.32					$ 0.28						$	0.62					$	0.44
Diluted weighted average shares outstanding		60,863					60,069							60,706						59,795

Selected Segment Information
Revenues:
Restaurants	$	404,797					$393,582						$	798,469					$	773,241
Bakery		27,182					26,606							52,530						51,540
Intercompany bakery sales		(13,070	)				(12,244	)						(26,657	)					(24,043	)
	$	418,909					$407,944						$	824,342					$	800,738

Income from operations:
Restaurants	$	58,387					$ 51,470						$	107,727					$	88,530
Bakery		2,219					3,808							4,734						6,112
Corporate		(23,311	)				(26,319	)						(46,489	)					(47,702	)
	$	37,295					$ 28,959						$	65,972					$	46,940

Selected Consolidated Balance Sheet Information	June 29, 2010						December 29, 2009
Cash and cash equivalents				$	86,293				$	73,715
Investments and marketable securities					–					–
Total assets					1,033,456					1,046,751
Long-term debt					70,000					100,000
Total liabilities					486,527					530,638
Stockholders' equity					546,929					516,113

	13 Weeks Ended						13 Weeks Ended						26 Weeks Ended						26 Weeks Ended
Supplemental Information	June 29, 2010						June 30, 2009						June 29, 2010						June 30, 2009
Comparable restaurant sales percentage change					1.6	%				(3.2	)%					2.2	%					(3.3	)%
Restaurants opened during period					–					–						2						1
Restaurants open at period-end					162					160						162						160
Restaurant operating weeks					2,106					2,080						4,196						4,153

Reconciliation of Non-GAAP Results to GAAP Results

In addition to the results provided in accordance with Generally Accepted Accounting Principles ("GAAP") in this press release, the Company is providing non-GAAP measurements which present the second quarter and year-to-date fiscal 2010 and fiscal 2009 changes to net income and diluted net income per share excluding the impact from certain items. Additional detail regarding the fiscal 2010 item can be found on the first page of this press release.

The non-GAAP measurements are intended to supplement the presentation of the Company’s financial results in accordance with GAAP. The Company believes that the presentation of these items provides additional information to facilitate the comparison of past and present financial results.

	13 Weeks Ended					26 Weeks Ended
	June 29, 2010		June 30, 2009			June 29, 2010		June 30, 2009
	(unaudited; in thousands, except per share data)
Net income (GAAP)	$	19,229	$	16,569		$	37,895	$	26,588
After-tax impact from:
- Unwinding of interest rate collar (1)		4,426		1,950			4,426		1,950
- Chairman and CEO employment agreement (2)		–		1,530			–		1,530
- Realization of investment in variable life insurance contract (3)		–		(668	)		–		(668	)
Net income (non-GAAP)	$	23,655	$	19,381		$	42,321	$	29,400

Diluted net income per share (GAAP)	$	0.32	$	0.28		$	0.62	$	0.44
After-tax impact from:
- Unwinding of interest rate collar (4)		0.07		0.03			0.08		0.03
- Chairman and CEO employment agreement		–		0.02			–		0.02
- Realization of investment in variable life insurance contract		–		(0.01	)		–		(0.01	)
Diluted net income per share (non-GAAP)	$	0.39	$	0.32		$	0.70	$	0.48

(1)		The pre-tax amounts associated with this item are $7,376 and $3,250 in the 13 weeks ended June 29, 2010 and June 30, 2009, respectively, and were recorded in interest expense.
(2)		The pre-tax amount associated with this item was $2,550 and was recorded in general and administrative expenses.
(3)		The item was non-taxable and was recorded in other income, net.
(4)		The diluted weighted average shares outstanding are different for the 13 and 26 weeks ended June 29, 2010. As a result, the after-tax impact on a diluted net income per share basis from the unwinding of the interest rate collar in fiscal 2010 is not the same for both periods.