Cheesecake Factory is Reversing Higher

Restaurant operator Cheesecake Factory NASDAQ: CAKE stock spiked on its Q4 2021 earnings only to plunge with the benchmark indexes sell-off. The operator of restaurants Cheesecake Factory, North Italia, Flower Child, and Fox Restaurant Concepts (FRC) including Grand Lux Café and Rock Sugar has seen sales rise above the pre-pandemic levels of 2019. The Omicron surge in the final 2 weeks of the quarter created softer sales causing the Company to miss bottom-line estimates for the Q4 2021 period. Supply chain challenges and inflationary pressures are causing the Company to raise its new menu prices 3.25% in 2022. The brands continue to gain traction as the Company sets its sights to open 17 to 19 new restaurants this year. Shares are trading at just 12X forward earnings. Prudent investors seeking a value play in the dining and hospitality sector can look for opportunistic pullbacks in shares of Cheesecake Factory.

Q4 Fiscal Year 2021 Earnings Release

On Feb. 16, 2022, Cheesecake Factory released its fourth-quarter fiscal 2021 results for the quarter ending December 2021. The Company reported a non-GAAP diluted earnings-per-share (EPS) of $0.49, missing analyst estimates by $0.58 by (-$0.08). Revenues rose 40.1% year-over-year (YoY) to $776.69 million, beating analyst estimates for $774.52 million. Same store sales rose 33.8% YoY and 7% compared to 2019. The Company reported $29.1 million in pre-tax charges of asset impairments and tax reserves. Comp sales for fiscal Q1 2022 to date through February 15 increased 24.3% driven by off-premises sales mix of 30%.

CEO Comments

Cheesecake Factory CEO David Overton commented, “We posted another quarter of solid sales performance across our brands, continuing to outperform the broader casual dining industry and recording record revenues despite the surge in COVID-19 cases from the Omicron variant towards the end of the year,” said David Overton, Chairman and Chief Executive Officer. “Specifically, fourth quarter comparable sales at The Cheesecake Factory were running at 10.6% going into the third week of December relative to fiscal 2019. We believe our operating results would have been in line with expectations but for the softer sales trend during the last two weeks of the quarter which coincided with the Omicron surge.”

Conference Call Takeaways

CEO Overton commended his restaurant operators for sequentially improved efficiencies, workforce retention and labor productivity. The earnings miss stemmed from the softer sales in the last 2 weeks of the quarter due to the Omicron surge. The first quarter of 2022 started off very strong as same-store sales are up 24.3% through February 15, 2022. However, the current environment is dynamic in terms of managing the effects of supply chain, government and local permitting approvals influencing the timing of openings. The Company plans to open 17 to 19 new restaurant locations in 2022 including Flower Child, North Italias and FRC restaurants. The Company is ready to rollout its new Cheesecake Factory menu which factors in a 3.25% price increase that will drive a 4.75% YoY menu price increase.

CAKE Price Trajectories

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for CAKE stock. The weekly rifle chart uptrend peaked at the $44.71 Fibonacci (fib) level. Shares collapsed quickly after earnings towards the $33.28 fib before staging a bounce attempt. The weekly rifle chart uptrend is forming a potential reversal on the abrupt collapse after rejecting the weekly 200-period moving average (MA) at $42.38. The weekly 5-period MA is stalled at $39.87 followed by the 15-period MA at $38.97. Shares fell under the market structure low (MSL) breakout trigger at $38.07. The weekly 50-period MA overlaps with the weekly upper Bollinger Bands (BBs) at $47.65. The weekly lower BBs are expanding at $32.35. The daily rifle chart is forming a breakdown as the 5-period MA at $40.03 falls through the 15-period MA at $40.99 and through the 50-period MA at $38.88. The daily lower BBs sit at $35.63. Prudent investors can watch for opportunistic pullbacks levels at the $35.46 fib, $33.28 fib, $32.40, $31.05 fib, $30.19 fib, $29.19 fib, $27.46, and the $26.05 fib level. Upside trajectories range from the $42.79 fib up towards the $52.96 fib level.