'Blame It On The Rain': Argus Downgrades Cheesecake Factory On Weak Comps From Weather Woes

Disappointed and unimpressed with Cheesecake Factory’s Inc CAKE recent announcements, Argus analyst John Staszak has downgraded the restaurant company from Buy to Hold.

“We are disappointed that the revised guidance comes just six weeks after quarterly guidance was issued and leads us to believe that the weak comps will continue into the third quarter. Longer term, we expect CAKE stock to attract investors, given the company’s record of dividend hikes, share repurchases and ability to open new stores while also generating consistent comp growth. Our long-term rating remains Buy,” Staszak noted.

3 Key Takeaways

1. Weather Woes: On June 13, Cheesecake Factory lowered its guidance to just 1 percent, citing unfavorable weather. “The projected decline follows 29 straight quarters of same-store sales gains. Management said weakness in the East and Midwest was attributable to unfavorable weather and, as a result, less outdoor dining. We are disappointed that the revised guidance comes just six weeks after quarterly guidance was issued and leads us to believe that the weak comps will continue into the third quarter,” Staszak highlighted.
2. Expect A Lower EPS: Since Cheesecake Factory’s earnings are primarily driven by same-stores sales, Staszak expects to see a lower EPS, especially with declining comps. “On average, other casual dining chains saw same-store sales decline 90 basis points in the first quarter,” he noted.
3. Increasing Costs: Cheesecake Factory plans to open eight new restaurants (down from 8–9) this year and is anticipating a 5-percent increase in labor costs. “Wage inflation has continued this year and we believe we have underestimated the extent of labor cost headwinds,” Staszak said.