CAKE: CASUAL DINER WITHOUT THE DRAWBACKS

Long shares in Cheesecake Factory was one of the two ideas we pitched yesterday during our consumer sector heads’ Best Ideas call, the other being short Burger King.

 

We have been vocal about our bearish stance on casual dining for some time and have focused that call on two stocks in particular: BWLD and DRI.  The DRI call was particularly impactful given that it was highly contrarian, but also because of the ramifications for the space.  The crucial ingredient in Darden’s most recent quarter was its statement that the company’s strategy was to be less protective of margins going forward.   We believe CAKE is one company within casual dining that will see limited impact from Darden’s “price war”.  The stock has underperformed the market of late but we believe bottoming earnings estimates and other fundamental factors could make the stock an attractive long at this price.

  • Strong marketing presence, loyal consumer base, and high average unit volumes
  • Improving housing outlook benefits the core CAKE consumer
  • Negative sentiment in the stock
  • Modest same-restaurant sales expectations vs optimism in casual dining trends outlook

CAKE: CASUAL DINER WITHOUT THE DRAWBACKS - cake comps vs consensus

 

CAKE: CASUAL DINER WITHOUT THE DRAWBACKS - cake price action

 

CAKE: CASUAL DINER WITHOUT THE DRAWBACKS - casual dining ratings

 

 

Potential For Upside Surprise

 

The company is set to take roughly 2% in price during 2013.  Consensus is modeling roughly flat average check growth despite traffic outperforming industry trends (Knapp) by an average of 270 bps over the past four reported quarters and mix running between -0.4% and -1%.  Management’s guidance on average check was quite firm during the most recent earnings call: “We're not considering a negative. The average check has never gone down that I know of, not in years. So no, we're not considering a negative average check.”

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst

 

 


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more