GO
Loading...

Will Consumers Eat CAKE?

Wednesday, 11 Jun 2008 | 6:23 PM ET

High food costs and a battered consumer have dragged down shares of Cheesecake Factory -- 25% this year. In May Goldman Sachs downgraded the casual dining restaurant to "Neutral" from "Buy" and cut their price target to $24 from $25.

Steven Kron said in a client note that tax rebates could help the company's sales near term, but energy costs and credit worries may continue to squeeze consumers and as a result put their earnings at risk.

Cheesecake Factory CEO David Overton joins Fast Money to provide further insights into his business and the state of the consumer. Following is a summary of his main points.

Tomorrow's Trades #1
Trading the ripples of oil through the economy, with the Fast Money traders.


How is your business?

“We are sluggish but over the past 3 years all of casual dining has taken a fall,” says Overton. “The consumer is really pressed and until we see more strength in the middle class I think we’re in this for a while.”

How are commodity costs?

“We are hedged for the rest of this year and we’re working on next year,” he replies. "Obviously it’s a day-to-day battle… because today you really have to pass along value to consumers.”

Most of your restaurants are in malls, does that present a challenge in this economy?

“We’re not connected to malls in terms that if they’re down we’re down,” explains Overton. “That has not been the case in the past.”

In this environment, what's your game plan to make your stock grow?

“We have $80 - $90 million in free cash flow that we’re going to use for share repurchases,” explains Overton. “This year were going to do $150 million in stock repurchases. So I think that is a great plan given the economy. Although our growth has slowed we still have a way to provide return to our shareholders.”

_____________________________________________________
Got something to to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment but not have it published on our website send your e-mail to fastmoney@cnbc.com.

Trader disclosure: On June 11, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (WMT), (MSFT), (INTC), (DIS); Adami Owns (AGU), (BTU), (C), (NUE), (GS), (INTC), (MSFT); Najarian Owns (AAPL), (BHI), (TSO), (ANR), (BUD), (XLF), (HPQ) (CHK); Najarian Owns (NUE) Calls; Najarian Owns (DHI) Puts, (LEH) Puts; Finerman Owns (GS); Finerman's Firm Owns SPX Index Puts; Finerman's Firm And Finerman Own (C) And (C) Leaps; Finerman's Firm Owns (AAPL), (MSFT), (SUN), (TSO), (VLO); Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (BIG); GE Is The Parent Company Of CNBC

  Price   Change %Change
CAKE
---

Featured

Contact Fast Money

  • Showtimes

    Halftime Report - Weekdays 12p ET
    Fast Money - Weekdays 5p ET
  • Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

  • Scott Wapner is host of the "Fast Money Halftime Report," which airs weekdays from 12 p.m. to 1 p.m. ET.

  • Guy Adami is a contributor on CNBC's "Fast Money." He also is managing director of stockMONSTER.com.

  • Najarian, the "Pit Boss," is cofounder of optionMONSTER.com, a news site for options traders.

  • Finerman is president of Metropolitan Capital Advisors, Inc., a company she co-founded.

  • Founder of EmergingMoney.com

  • Chief Market Strategist for Virtus Investment Partners & CNBC Contributor

Halftime Report