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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