Keith’s covering of CAKE this morning was executed at a critical risk management level in his model. The fundamental case, however, is unchanged.
As we described in our post yesterday outlining the SIGMA positions in the restaurant space, CAKE faces increasingly difficult restaurant-level margin comparisons going forward. The second half of this year will be especially difficult in this respect. CAKE’s management team, along with several peer management teams, has stated that food costs are going to be a headwind in 2H10. For CAKE, with higher restaurant margin hurdles to comp down the track, this anticipated cost pressure could prove meaningful. Also evident in the chart is the degree to which top line trends will be harder to lap as the year unfolds.
We also are monitoring the considerable downside risk that exists in the macro-consumer sphere; today’s University of Michigan Consumer Sentiment release is yet another bearish consumer macro data point. In light of this, and the SIGMA analysis summarized above, we believe estimates will be moving lower in 2H10. Our EPS estimate for 2010 is currently $1.31 versus the street at $1.36.