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HIRE Act Generating Material Labor Cost Benefit in Q4 2010

|Includes: The Cheesecake Factory Incorporated (CAKE), PNRA

In Q4 2010 conference calls, retail/restaurant companies are talking about the benefits of the HIRE Act (at least the more transparent/honest management teams). 

We’ll give kudos to Cheesecake Factory (CAKE – $29.32) CFO Doug Benn for his honesty.  He points out the benefit of the HIRE Act in the company’s Q4 2010 earnings conference call (see below). 

We’ll try to stay away from the politics of his response (see below).  But, we think that it’s safe to assume that Mr. Benn believes that it’s foolish to assume companies would see the HIRE Act as anything other than a corporate giveaway.  He certainly seems to see it that way.

Analysts should ask companies about the benefits of the HIRE Act in Q4 2010.  We’re betting that many companies will try to take credit for mysteriously lower than expected labor costs in Q4 2010.  For example, PNRA made no mention of the HIRE Act in regards to Q4 2010 earnings.  But the CFO made the following comment re: labor… “We don’t know that this is a sustainable thing which is going to change the trajectory of labor growth… when we annualize this in the fourth quarter, we think the benefit kind of goes away.”

Sounds like PNRA may have tried to ‘bury’ the HIRE Act benefit in Q4 2010. 

Doug Benn – The Cheesecake Factory – CFO, EVP
HIRE impact was about half of that. Let’s just say 40 basis point to 50 basis points. The HIRE Act required a lot of work. I would  assume that it would apply to everyone. I don’t know why it wouldn’t, but it does take work to go back and determine every employee that was hired during the year, and whether or not they qualified for this or not. So, we did a good bit of research and scrambling to be able to get that HIRE Act credit, but I don’t see why other companies would not be getting it as well.

Jake Bartlett – Susquehanna Financial Group / SIG – Analyst
Okay. So, a concept that had a little more turnover. Maybe more unit openings could get more of a benefit from that?

Doug Benn – The Cheesecake Factory – CFO, EVP
They could. You had to hire workers that were not employed. Interestingly enough, the intent was to try to incentivize people to hire workers who were unemployed. It actually didn’t do that at all. We just hired who we were going to hire any way. If they happened to have been unemployed before, we got the HIRE Act credit.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.