Business Context and Reporting Period
Company: The Cheesecake Factory Incorporated
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Thirteen weeks ended April 2, 2002
Operations: As of April 25, 2002, the Company operated 52 upscale casual dining restaurants under The Cheesecake Factory mark, two Grand Lux Cafe locations, one Cheesecake Factory Express, and a bakery production facility. The Company utilizes a 52/53-week fiscal year.
Key Financial Metrics
| Metric | Q1 2002 (13 weeks) | Q1 2001 (13 weeks) |
|---|---|---|
| Total Revenues | $150.2 million | $120.5 million |
| Net Income | $10.6 million | $8.4 million |
| Diluted EPS | $0.21 | $0.17 |
| Operating Cash Flow | $22.8 million | $3.9 million |
| Cash & Marketable Securities | $98.8 million | $92.3 million (Jan 1, 2002) |
| Long-term Debt | $0 | $0 |
| Operating Margin | 10.0% | 9.3% |
| Net Margin | 7.0% | 6.9% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 25% year-over-year. Restaurant sales rose 22% ($137.6M vs $112.4M), driven by a $23.2M increase from new openings and a 2.1% increase in comparable restaurant sales. Bakery sales surged 54% to $12.6M, primarily due to higher volumes to warehouse clubs.
- Profitability: Net income increased 26% to $10.6M. Operating income rose to $15.0M (10.0% margin) from $11.3M (9.3% margin).
- Cost Management: Restaurant cost of sales as a percentage of sales improved to 24.3% from 25.6%, aided by lower commodity costs. Labor expenses as a percentage of revenue remained stable at 30.8% despite a California minimum wage increase, offset by revenue leverage.
- Cash Flow: Cash provided by operating activities jumped significantly to $22.8M from $3.9M in the prior year period.
- Capital Expenditures: Additions to property and equipment increased to $21.6M from $11.6M, reflecting aggressive expansion.
Guidance, Outlook, and Risks
- Capital Expenditure Outlook: Management estimates fiscal 2002 capital expenditures to range between $70-$75 million, supporting up to 12 new restaurant openings.
- Liquidity: The Company holds $98.8 million in cash and marketable securities. There is no long-term debt, and no borrowings were outstanding under the $25 million revolving credit facility as of April 25, 2002.
- Forward-Looking Risks: Management cites risks including the ongoing impact of the September 11, 2001 terrorist attacks on consumer spending, increasing competition, adverse weather, and fluctuations in raw material costs (specifically fresh produce, poultry, and dairy).
- Market Risk: The Company is exposed to interest rate risk on its credit facility (currently unutilized) and market price risk on its $83.5 million portfolio of marketable securities.
Investor Verification Checklist
- Expansion Execution: Verify the timeline and cost of the planned 12 new restaurant openings for fiscal 2002 against the $70-$75M capital budget.
- Bakery Dependency: Assess the concentration risk of bakery sales, noting that warehouse clubs comprised 51% of bakery sales in Q1 2002.
- Commodity Pricing: Monitor the impact of fixed-cost agreements for cream cheese and potential volatility in fresh produce and poultry costs.
- Working Capital: Review the negative net working capital position ($5.2M deficit) versus the strong adjusted net working capital ($69.9M) which includes marketable securities.
- Stock Repurchases: Confirm the status of the remaining authorized share repurchases (948,400 shares repurchased to date under a 1.69M share authorization).