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Soft movie ticket sales, value menu also to blame for Cheesecake Factory's declining sales

  • Analysts said weak movie ticket sales and the failed roll out of a value menu hurt sales at Cheesecake Factory in the second quarter.
  • At least three analysts have lowered their full-year 2017 EPS estimates because of the poor same-store sales forecasts.
  • The second quarter could be Cheesecake Factory's first negative same-store sales quarter since fourth quarter 2009.
Reese's Peanut Butter Chocolate Cake Cheesecake at the Cheesecake Factory.
Getty Images
Reese's Peanut Butter Chocolate Cake Cheesecake at the Cheesecake Factory.

Weather might not be the only concern for Cheesecake Factory investors.

While shares of the restaurant rebounded slightly on Wednesday, just a day after the company lowered its fiscal second-quarter outlook, analysts foresee more trouble ahead.

Cheesecake Factory said Tuesday that it expects same-store sales to be down about 1 percent, blaming the weakness on unfavorable weather, which reduced the chain's ability to use its outdoor patio space. This space is about 10 percent of its total seating.

"Weather was in part to blame for Cheesecake's first negative [same-store sales] quarter since [fourth quarter 2009]," Guggenheim analyst Matthew DiFrisco wrote in a research note Wednesday. "However, the failure of the March value menu insert (about 10 items mixed between appetizers and entrees all below $15) further highlights the brand's inability to drive incremental traffic."

DiFrisco lowered his full-year 2017 EPS estimate to $2.85 from $2.97. He also projected that the company's same-store sales would be down about 0.9 percent, slightly above the guided range, because the chain still has a few weeks for trends to improve.

Another bump in the road for Cheesecake Factory is the weak start to the summer box office, according to Stephen Anderson, a Maxim Group analyst. He wrote in a research note Wednesday that the deceleration in movie ticket purchases and lower foot traffic hurt the restaurant chain this quarter.

"We argue increased movie ticket sales are an incremental traffic contributor for Cheesecake Factory, given the adjacency of its restaurants to movie theaters," he said.

While Anderson sliced his full-year 2017 EPS estimate to $3.00 from $3.09, he maintained his $65 price target and upgraded the stock to buy from hold. He said that the setback in the second quarter is "not raining on our longer-term constructive outlook."

Similarly, Peter Saleh, a BTIG analyst, maintained his buy rating on the stock on Tuesday.

"We believe this is more of an industry rather than concept-specific issue, as evidenced by several markets remaining positive, and expect comps will be able to recover in coming quarters," he wrote in a research note. "We expect this will certainly weigh on investor sentiment, which combined with our lowered estimates reduces our price target to $60 from $68 previously."

Saleh also lowered his full-year EPS estimate to $2.89 from $3.03 and cut his second quarter same-store sales forecast from up 1.6 percent to down 1 percent.

Shares of Cheesecake Factory were up nearly 3 percent on Wednesday, recently changing hands at $54.03.