Business Context and Reporting Period
Company: The Cheesecake Factory Incorporated
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Thirteen and thirty-nine weeks ended October 1, 2002
Operations: As of October 21, 2002, the Company operated 56 Cheesecake Factory restaurants, 3 Grand Lux Cafes, 1 Cheesecake Factory Express, and a bakery production facility. The Company utilizes a 52/53-week fiscal year.
Key Financial Metrics
| Metric (in thousands) | 13 Weeks Ended Oct 1, 2002 | 39 Weeks Ended Oct 1, 2002 |
|---|---|---|
| Total Revenues | $161,982 | $477,576 |
| Net Income | $12,082 | $35,896 |
| Diluted EPS | $0.20 | $0.70 |
| Operating Cash Flow (39 weeks) | $66,733 | |
| Cash & Marketable Securities | $110,400 (as of Oct 1, 2002) | |
| Long-Term Debt | $0 | |
| Operating Margin (13 weeks) | 10.7% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 17.7% for the quarter and 22.3% for the year-to-date period compared to the prior year. Restaurant sales grew 18.9% (quarter) and 21.0% (YTD), driven primarily by new restaurant openings ($23.1M and $71.9M respectively) and modest comparable store sales growth (1.1% and 1.6%).
- Bakery Sales: Bakery sales were flat for the quarter ($9.1M) due to a voluntary product withdrawal in July 2002 related to potential bacteria contamination, which reversed approximately $1.4M in sales. However, YTD bakery sales increased 42.1% to $35.8M due to higher volumes to warehouse clubs.
- Cost Management: Restaurant cost of sales as a percentage of sales improved to 23.4% (quarter) and 23.8% (YTD) from 25.5% in the prior year, attributed to lower commodity prices and volume discounts. Labor expenses increased slightly as a percentage of revenue (31.0% vs 30.6%) due to higher fringe benefit costs.
- Unusual Items: Costs associated with the bakery product withdrawal totaled approximately $2.1 million, recorded within "Other Operating Expenses."
Guidance, Outlook, and Risks
- Capital Expenditures: Management estimates fiscal 2002 capital expenditures to range between $70 million and $75 million, supporting up to 12 new restaurant openings. Fiscal 2003 plans include up to 14 additional openings.
- Liquidity: The Company maintains a strong liquidity position with $110.4 million in cash and marketable securities and no outstanding borrowings under its $25 million credit facility. Management believes current resources are sufficient to fund operations through fiscal 2003.
- Outlook: Management expects bakery sales for the fourth quarter to return to levels comparable to the prior year. Restaurant cost of sales is expected to remain favorable assuming no market disruptions.
- Risks: Key risks include the impact of the September 11, 2001 attacks on consumer spending, competition in the upscale casual dining segment, fluctuations in raw material costs (particularly fresh produce and dairy), and the Company's dependence on a single bakery production facility.
Investor Verification Checklist
- Bakery Recovery: Verify that bakery sales volumes have fully stabilized following the July 2002 product withdrawal and that no further customer attrition has occurred.
- Comparable Store Sales: Monitor the sustainability of comparable restaurant sales growth, which is currently driven largely by menu price increases rather than traffic growth.
- Capital Deployment: Track the execution of the $70-$75 million capital expenditure plan and the timing of new restaurant openings to ensure they align with revenue projections.
- Commodity Costs: Watch for volatility in fresh produce, poultry, and dairy prices, which constitute approximately one-third of restaurant cost of sales.
- Grand Lux Cafe Performance: Assess the operational refinement and cost structure of the new Grand Lux Cafe concept, which currently exhibits higher labor costs.