Cheesecake Factory Cuts View Amid Difficult Sales Environment

Casual-dining restaurant chain The Cheesecake Factory Inc. CAKE has become the latest restaurant to capitulate to pressures facing the broader restaurant industry of late as the company slashed its second-quarter fiscal 2017 guidance.

Consequently, shares of the company plunged nearly 10% in yesterday's trading session, following the news release.

In second-quarter fiscal 2017, the company now anticipates comps to be down roughly 1% at Cheesecake Factory restaurants, after previously projecting an increase of in the band of 1% to 2%.

In fact, Cheesecake Factory expects the lowered comps outlook to impact both margins and earnings per share EPS as well in the fiscal second quarter. Earlier, it had guided EPS in the range of 85 cents to 88 cents, for the quarter.

What's Behind Cheesecake Factory's Guidance Cut?

The company revealed that it has been witnessing heightened volatility in week to week sales trends, indicative of uncertainty on the part of many customers.

Moreover, it particularly blamed weakness at its U.S. restaurants in the East and Midwest for the soggy sales. Unfavorable weather condition in these regions also reduced patio usage -- a big draw for the chain. This, in turn, has more than offset positive comps experienced in key markets of California, Texas and Florida.

Troubles Rife at Cheesecake Factory

Cheesecake Factory has mostly been a bright spot amidst the gloomy casual-dining industry. Evidently, the company posted the 29th consequent quarter of positive comps at The Cheesecake Factory restaurants in first-quarter fiscal 2017.

However, given the weak comps projection by Cheesecake Factory due to sluggish sales trends, this streak is on the brink of being snapped.

This adds to the woes of investors who were already rattled by the company's lackluster fiscal first quarter results issued last month with top- and bottom-line missing estimates. Comps at Cheesecake Factory restaurants too increased a mere 0.3%, lower than the expectations.    

Earlier, at its fiscal first quarter conference call, the company had slashed its fiscal 2017 adjusted EPS projection. This was done mainly to reflect the impact of modest tempering of its top-line expectations for the remaining of 2017 as the expected improvement in the consumer environment has not so far played itself out. Additionally, Cheesecake Factory had cut its comps guidance for the full year as well.

Notably, shares of the company have also compared unfavorably with the Zacks categorized Retail-Restaurants industry in the last six months. While the industry witnessed a gain of 8.9%, Cheesecake Factory shares have seen a decline of 15.1%.