By Michael Elkins
UBS downgraded The Cheesecake Factory (NASDAQ:CAKE) to a Sell rating (From Neutral) and reiterated a $30.00 price target on the stock following a ~16% rise in shares YTD and expectations for a more challenged macro this year. Analysts also see risk to the company’s 2023 margin guidance.
They wrote in a note, “Consistent with macro & sector concerns laid out in our 2023 Outlook, we expect CAKE sss could decelerate from relatively solid levels through most of '22, while cost pressures & pricing elasticity could limit margin recovery. We see challenges to reaching '23 RL margin guidance for a return to pre-COVID's ~15.7%, and model 14.1% (Cons. 14.3%) given risk to traffic/sales from elevated pricing and lingering cost inflation across labor and food (+MSD).”
UBS expects restaurant margins will fall short of fully recovering pre-COVID levels for the full year. Forecasts reflect a ~3.9% sss (and 8.3% price) against assumed ~MSD labor inflation and ~MSD food inflation, as well as other restaurant expense pressure.
Investor expectations are that CAKE can deliver on $3.5 billion - $3.6 billion revenue targets for 2023 (Consensus $3.52B; Cheesecake brand sss of 4.3%). Expectations for restaurant margin recovery targets are more mixed, while sell-side Consensus expectations are currently for 14.3% in 2023.
Shares of CAKE are down 2.18% near mid-day trading on Wednesday.