Option Review Costs Cheesecake $1.2 Million

Cheesecake Factory Inc. said Monday that its internal review of stock option practices had already cost it as much as $1.2 million. That would amount to more than 5% of average quarterly net income over the last four reported quarters.

The Calabasas Hills-based restaurant chain said investigation costs were “approximately $1 million to $1.2 million” in the quarter ended Oct. 3.

The company also said it expected additional costs related to its internal review, an SEC inquiry and shareholder lawsuits.

Also Monday, Cheesecake Factory estimated that sales in the latest quarter rose about 11% to $325 million from a year earlier. Sales at restaurants open more than one year were down 1.6%, but CEO David Overton said he was “encouraged by our recent sales trends.”

Cheesecake Factory and other restaurant chains had been hurt in spring and summer as high gasoline prices cut into consumers’ dining-out budgets.

At least three brokerages cut their earnings estimates for Cheesecake Factory after its sales report and option-investigation expense estimate. Goldman Sachs Group trimmed its third-quarter estimate to 25 cents a share from 27 cents.

The company’s stock closed at $27.58, down 11 cents, after falling as low as $25.69. The stock is down 26% year to date.

Cheesecake Factory has not reported results for its second quarter ended July 4 because of the ongoing option probe.

The company earned $21.9 million, or 27 cents a share, in the third quarter of 2005.