'Not the right time' to own casual-dining stocks, Wells Fargo says

Cheesecake Factory

26/06/2023 16:59

** Wells Fargo initiates coverage on casual-dining
restaurants with a "more negative stance", citing softer
consumer spending; says "not the right time" to own stocks
    ** Brokerage expects sentiment on casual-dining group to
turn more negative as trends start to slow, including slower
traffic and easing benefits from price hikes
    ** Starts coverage on Brinker International  EAT.N  with
"underweight" rating, and "equal weight" on Cheesecake Factory
 CAKE.O  and Texas Roadhouse  TXRH.O  
    ** Shares of TXRH down ~2% at $106.94, CAKE drops ~1% to
$32.02, while EAT down marginally at $33.92
    ** Dining-out has proven to be an affordable luxury thus
far, but pressure is building on the consumer, which could lead
to fewer visits, more trade-down and shift back to cooking at
home - brokerage
    ** Wells Fargo points to credit card debt rising ~13% y/y,
pandemic savings dwindling at low- and middle-income households
and resumption of student loan payments
    ** EAT has not seen positive traffic in 4 quarters,
brokerage says, adding peers ramping up promotions can further
hurt company despite its efforts to upgrade menu
    ** YTD, EAT up ~6%, TXRH has gained ~18%, while CAKE up
marginally    

 (Reporting by Deborah Sophia in Bengaluru)
 ((DeborahMary.Sophia@thomsonreuters.com))