Why Cheesecake Factory Inc.'s Shares Were Sent Back to the Kitchen

By Markets Fool.com

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What: Shares of Cheesecake Factory were trading 10% lower as of 1 p.m. today after the restaurant chain reported subpar fourth-quarter numbers on Wednesday evening.

So what: Cheesecake Factory's revenue ($499.7 million) and earnings per share ($0.48) both came in well below analysts' consensus model for $510 million in revenue and $0.60 in EPS. This underperformance came despite a 1.4% rise in comparable-store sales for the quarter. Cheesecake Factory's bottom line actually fell for both the quarter (from $0.57 in EPS a year ago) and for the full year, which produced $1.97 in EPS compared to 2013's $2.10. CEO David Overton blamed the company's shortfall on a "challenging" operating environment that was "affected by cost pressures."

Now what: The restaurant business is notoriously difficult to gain traction in, and the sit-down category has been turbulent in recent years. This report undid much of the growth Cheesecake Factory's shares have enjoyed since late last year, but the decadent dessert specialist's stock has still doubled over the past five years. Cheesecake Factory's 23 P/E remains reasonably low compared to many of its sector peers, and the company expects to open a total of 15 new restaurants -- 11 in the U.S. and another four internationally -- in 2015, up from 10 openings in 2014. I wouldn't call Cheesecake Factory the best buy in a very crowded sector, but it has proven relatively resilient during the post-financial crisis years, and that merits at least a look from restaurant-focused investors.

The article Why Cheesecake Factory Inc.'s Shares Were Sent Back to the Kitchen originally appeared on Fool.com.

Alex Planes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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