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Love it or hate it, The Cheesecake Factory (CAKE) faces a tough economic climate heading into the second half of 2012. The company reports earnings on July 20 and according to our estimates, CAKE will miss same store sales by the 2% consensus on the Street which currently stands at +1.95%.

Interestingly, investors seem to have taken a liking to CAKE as of late. Over the past week, the stock has outperformed the S&P 500 by 3.9% and the Casual Dining Index by 2.25%. A key data point to examine is the ICSC Chain Store Sales Index, which is a compilation of publicly-available sales for retail chain stores.

CAKE: Not Worth Eating - CAKE SSSjuly20

Looking at the above chart, you can see the recent decline in the ICSC index comparable to CAKE same store sales. That gap is indicative of the miss we expect of CAKE as most Cheesecake Factory stores are located in malls. The decline in retail could be construed in a way that less people are visiting malls and thus, are visiting Cheesecake Factory less. Nothing is certain until July 20, but we are not optimistic about CAKE’s report