Restaurant Firm Probes Option Grants

Calabasas Hills-based restaurant chain Cheesecake Factory Inc. said Tuesday that it was reviewing previous stock-option grants to employees -- joining a growing list of companies that are looking into past options practices.

The company said it initiated the review “in response to recent media and Wall Street reports regarding the option granting practices at numerous publicly traded companies.”

Cheesecake Factory said the audit committee of its board was working with outside attorneys in the review.

The announcement brings to at least 65 the number of companies that are undergoing regulatory scrutiny or in-house reviews for options practices.

Regulators, including the Securities and Exchange Commission, are looking into whether companies inflated the value of options granted to executives and other employees by backdating or timing the grants to coincide with days when the stock price was low.

Most of the companies involved in the probe are technology firms.

“We haven’t seen it in the restaurant industry to date, so I think it will be a surprise to investors,” Christopher O’Cull, an analyst at SunTrust Robinson Humphrey in Nashville said of Cheesecake Factory’s announcement.

But he said that the company had “a very conservative management team” and that “they’re doing the right thing” to look into option practices.

Cheesecake Factory said it wouldn’t comment further on the review until it was completed.

Also Tuesday, the company gave a preliminary estimate of second-quarter sales. It said that total revenue was up 12% from a year earlier to $322 million, but that sales at restaurants open longer than one year were down 0.8%.

Cheesecake Factory warned June 27 that results would be weak. The company operates 107 namesake restaurants nationwide and seven Grand Lux Cafe locations.

Industry analysts said rising gasoline costs had bitten into many consumers’ restaurant spending.

Cheesecake Factory’s shares fell 85 cents to $23.81 on Tuesday before its announcement. The stock is trading at its lowest level price since 2003 and is down 36% year to date.

The company said that it would release complete second-quarter earnings after the audit committee review and that it expected to file results by Aug. 14.

Also Tuesday, computer chip maker Xilinx Inc. said it postponed the release of its fiscal first-quarter results until July 25, pending the completion of its investigation of options practices.

The quarterly report was originally slated for release Thursday.

Shares of San Jose-based Xilinx rose 20 cents to $21.55 before the announcement, which was made after markets closed. The stock is down 14% this year.