Business Context and Reporting Period
Company: The Cheesecake Factory Incorporated
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Thirteen and twenty-six weeks ended July 3, 2001
Operations: As of July 25, 2001, the Company operated 44 upscale casual dining restaurants, one Grand Lux Cafe, two "express" foodservice operations (one closing in September 2001), and a bakery production facility.
Key Financial Metrics
| Metric | 13 Weeks Ended July 3, 2001 |
26 Weeks Ended July 3, 2001 |
26 Weeks Ended June 27, 2000 |
|---|---|---|---|
| Total Revenues | $132.2 million | $252.8 million | $201.3 million |
| Net Income | $10.2 million | $18.6 million | $14.1 million |
| Diluted EPS | $0.21 | $0.37 | $0.29 |
| Operating Cash Flow | N/A | $32.8 million | $33.3 million |
| Cash & Equivalents | $18.5 million | $18.5 million | $15.0 million |
| Total Assets | $312.4 million | $312.4 million | $288.4 million |
| Long-Term Debt | $0 | $0 | $0 |
Liquidity: Cash and marketable securities totaled $78.1 million as of July 3, 2001. The adjusted current ratio (including marketable securities) was 2.2:1.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 25.7% for the 13-week period and 25.6% for the 26-week period compared to the prior year. This was driven by a 26.0% increase in restaurant sales and a 21.2% increase in bakery sales.
- Comparable Sales: Comparable restaurant sales increased 2.4% year-over-year, aided by a ~1% menu price increase implemented in January 2001.
- Cost Pressures: Restaurant cost of sales increased slightly as a percentage of sales (25.5% vs 25.1%) due to higher produce and commodity costs. Energy costs (electric and natural gas) rose to 1.6% of total revenues from 1.0% in the prior year, largely due to volatility in California.
- Profitability: Net income margin remained stable at 7.7% for the 13-week period and improved to 7.4% for the 26-week period (vs 7.0% prior year).
- Capital Expenditures: Investing cash outflows were significant ($49.7 million for 26 weeks) due to additions to property and equipment ($41.7 million) and net purchases of marketable securities.
Guidance, Outlook, and Risks
- Capital Expenditure Outlook: Management estimates fiscal 2001 capital expenditures at approximately $55 million, including $42 million for 10-11 new restaurant openings and technology upgrades.
- Liquidity Position: Management believes current cash, operating cash flow, and the $25 million credit facility (currently unutilized) are sufficient to fund operations through fiscal 2002.
- Operational Risks:
- Energy Costs: Volatility in energy availability and cost in California poses a risk to operating margins.
- Commodity Prices: Fluctuations in the cost of produce, meat, and dairy products could impact margins.
- DisneyQuest Closure: The closure of the Chicago DisneyQuest facility in September 2001 will result in the closure of one "express" operation, though management expects no significant financial impact.
- Stock Repurchases: The Company has repurchased 850,500 shares for $9.3 million under an authorization to repurchase up to 1,687,500 shares.
Investor Verification Checklist
- Verify the impact of rising energy costs in California on future operating margins.
- Confirm the timeline and cost implications of the 10-11 planned new restaurant openings for fiscal 2001.
- Monitor the utilization of the $25 million revolving credit facility as capital expenditures proceed.
- Assess the sustainability of the 2.4% comparable sales growth rate given the 1% price increase already implemented.
- Review the composition of bakery sales, noting the shift away from warehouse clubs (47% of sales vs 57% prior year).