According to Goldman Sachs, inflationary issues will impact Cheesecake Factory’s stock in the next year. Jared Garber, an analyst, downgraded Cheesecake Factory’s stock to neutral. The stock’s price target was also reduced to $29 by Jared Garber, which represents a downside of 12.2% compared to Friday’s closing. Premarket, the stock traded 3.1% less. In a note to clients, he stated that macroeconomic pressure was expected in FY23. “We see this in the Casual Dining space as we’ve noted here — with limited pricing power support by broader inflation, incremental traffic declines and cost pressures likely to remain a headwind to margins.” Garber stated that companies are facing a more difficult economic environment as wages remain high and inflation drives down traffic. Consumers are restricting their spending. He said that owners have begun to notice early signs of customers switching to lower-priced options in the industry. Based on a Goldman Sachs analysis, Cheesecake Factory could see its traffic drop further. The company is currently performing below the industry average. Garber stated that pricing will be more difficult to manage next year. This will result in lower margins and inflated commodities. Labor costs will remain high relative to competitors. This is because the discretionary cash flow of the middle- and high-income consumers will experience the lowest year-over year growth next year. He said that the company’s relative valuation has declined in the past two quarters. These changes, taken together, will result in a decrease in the company’s topline growth and per-share earnings growth. Garber also stated that it is more at risk of falling into recession than its peers. Garber also downgraded Brinker International, which is the parent company to Chili’s and Maggiano’s Little Italy, to sell at neutral. His price target at $28 indicates a 20% downside to Friday’s close. Premarket, the stock dropped 2.9%. Although he believes in the long-term strategy, he said that 2023 will see choppy margins and sales for Chili’s. Garber stated that the company has a path to long term growth. However, it will not be linear as near-term earnings are under pressure from traffic trends and concerns about retaining low-income customers. This report was contributed by Michael Bloom, CNBC.
