A Slice Of Caution: Analyst Crumbs Over Cheesecake Factory's High Menu Pricing Strategy

Oppenheimer analyst Brian Bittner reiterates Perform rating on the shares of Cheesecake Factory Inc CAKE.
Cheesecake's revenue guidance for 2Q23 appears to imply a slowing same-store sales (SSS) trend to the low-single-digits from 1Q23's 5.7%, said the analyst.
The company's FY23 revenue outlook was tightened to $3.55 billion (from $3.5 billion - $3.6 billion), and for Q2, it expects revenue of $870 million - $890 million versus the Street estimate of $898 million.
The analyst's follow-up analysis suggests that SSS need to re-accelerate to 6%+ range in the back half to achieve management's overall financial outlook for 2023.
The analyst added that the company's hope of commodity inflation decelerating to high-single-digits in 2Q suggests that CAKE is on track to achieve low-14% gross profit margins in FY23.
The analyst adjusts 2023E/2024E EPS to $2.71/$3.34 from $2.87/$3.55.
The analyst said despite the company not seeing any major shifts in consumer habits thus far, management's sales guidance assumes negative traffic against ~9% menu pricing.
This level of pricing, the analyst opined, is key to achieving the ~15% targeted four-wall margins going forward.
The analyst concluded that commodity and labor inflation remain elevated, but these cost pressures are expected to lessen throughout the year, allowing CAKE to reiterate its 4% net income margin target for 2023.
Price Action: CAKE shares are trading lower by 2.50% at $30.99 on the last check Friday.

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