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 2, 2001
Operations: As of October 23, 2001, the Company operated 47 upscale casual dining restaurants, one Grand Lux Cafe, one "express" foodservice operation at DisneyQuest (Orlando), and a bakery production facility. The Company utilizes a 52/53-week fiscal year.
Key Financial Metrics
(Amounts in thousands, except per share data)
| Metric | 13 Weeks Ended Oct 2, 2001 | 39 Weeks Ended Oct 2, 2001 |
|---|---|---|
| Total Revenues | $137,620 | $390,376 |
| Net Income | $9,777 | $28,364 |
| Diluted EPS | $0.20 | $0.57 |
| Operating Cash Flow (39 weeks) | $43,897 | |
| Cash & Cash Equivalents (Oct 2, 2001) | $5,981 | |
| Total Marketable Securities (Oct 2, 2001) | $75,271 | |
| Long-Term Debt | $0 | |
| Adjusted Current Ratio | 2.4:1 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 23.6% for the 13-week period and 24.9% for the 39-week period compared to the prior year. This growth was driven primarily by new restaurant openings.
- Comparable Sales: Comparable restaurant sales were approximately equal to the prior year for the 13-week period (down slightly from pre-Sept 11 trends) and increased 1.4% for the 39-week period.
- Profitability: Net income increased 14.3% for the 13-week period and 25.1% for the 39-week period. Operating margins remained relatively stable, with income from operations at 10.3% of revenue (13 weeks) and 10.2% (39 weeks).
- Cost Pressures: Restaurant cost of sales increased slightly as a percentage of sales (25.5% vs 25.1% prior year) due to higher commodity costs. Labor expenses increased to 30.6% of revenue (13 weeks) due to new openings and higher medical insurance costs.
- Liquidity: Cash and cash equivalents decreased from $34.3 million to $6.0 million during the period, primarily due to capital expenditures ($52.3 million) and investments in marketable securities.
Guidance, Outlook, and Risks
- September 11 Impact: Management estimates that total restaurant sales for the 13 weeks ended October 2, 2001, would have been $2.7–$3.0 million higher absent the September 11 terrorist attacks. Sales in high-profile and tourist locations were adversely affected, though trends were recovering as of the filing date.
- Capital Expenditures: Estimated capital expenditure requirements for fiscal 2001 are $55–$60 million, including up to 10 new restaurant openings and technology upgrades.
- Energy Costs: Increased volatility in electric and natural gas costs, particularly in California, has raised operating expenses to 1.7% of restaurant sales (up from 1.3% in prior years).
- Outlook: Management believes current cash, marketable securities, and the $25 million credit facility (currently unutilized) are sufficient to fund operations and expansion through fiscal 2002.
- Risks: Key risks include economic conditions affecting consumer spending, competition, supply chain volatility, and the potential for further terrorist attacks or adverse publicity.
Investor Verification Checklist
- Post-Sept 11 Recovery: Verify if sales trends in tourist-heavy locations have fully stabilized to pre-September 11 levels.
- Energy Cost Exposure: Monitor the impact of volatile energy prices in California on future operating margins.
- Capital Deployment: Confirm the timing and cost of the planned 10 new restaurant openings for fiscal 2001.
- Liquidity Position: Review the drawdown of cash reserves ($28.3 million net decrease) against the $25 million credit facility availability.
- Bakery Mix: Assess the shift in bakery sales mix toward products with higher cost of sales percentages and its impact on long-term margins.