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.
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.”
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