Following management’s recent visit to NYC, I spent some quality time with the CAKE model and here are some of my initial thoughts.
Keith covered CAKE in the Hedgeye Virtual Portfolio today. I remain bearish on the fundamental side of the stock. Below are some key details to my perspective:
- I am coming in a little higher than guidance for Q2 and then closer to the low end of guidance for the FY.
- I think they can probably do more than their guidance of "at least $100M in share repurchase” given that high ending cash balances.
- Relative to recent trends, CAKE's comparable restaurant sales guidance seems reasonable.
- The bakery sales line slowed significantly in 1Q (on a 2-year average basis); the economy is keeping this business at bay.
Here a few other important things to remember:
- CAKE has an extra week in Q4
- They are doubling openings in FY11, which will impact preopening expense and capex; two important items that are hardly ever factored in correctly by consensus.
I still favor cake on the short side, particularly on any strength.