The Cheesecake Factory Incorporated (CAKE) and BJ’s Restaurants, Inc. (BJRI) Buck the Earlier Trend

The firm’s operating margin took a huge hit, falling 330 basis points year-over-year to 4.3%, reflecting higher costs across the board. Cost of sales increased 70 basis points to 25% as a result of a menu shift and higher food costs, but the big increases came from occupancy (up 140 basis points) and SG&A (up 60 basis points). Again, much of the increases were attributable to tough comparisons from last year’s extra week, but costs were still up year-over-year, and we think the company will need to see higher same-store sales to offset higher fixed costs.

For the fourth quarter, same-store sales rose 3% with the growth entirely attributable to price and mix, as traffic fell 0.9% during the quarter. Unfortunately for BJ’s, this trend has continued into 2013, and management didn’t sound too bullish to kick off the year, stating:

“For the first 7 weeks of the first fiscal quarter of 2013, our comparable restaurant sales are negative, approximately 0.5% compared to a positive 4% for the same period last year. What we have noticed, as I mentioned earlier, is that consumers have generally pulled back on the middle-of-the-week dine out occasion. In fact, the first quarter feels a lot like 2008, in which the middle of the week has become soft with weekends and special events holding up relatively well. For example, we had a very successful Valentine’s Day and Presidents’ Day weekend.”

The firm is anticipating 2%-3% same-store sales growth for the year, well below prior trends. However, the BJ’s concept is still regional, and it has room to expand nationally, in our view (though the company acknowledged it has to become more flexible to enter markets like the Northeast). Naturally, the firm is citing payroll taxes and higher gas prices as the primary headwinds impeding expansion. We think shares look fairly valued at this time.

The article Cheesecake Factory and BJ’s Restaurants Buck the Earlier Trend originally appeared on and is written by RJ Towner.

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