Cheap eats: Economy's woes slam restaurant stocks
From Times staff writer Jerry Hirsch:
Worries about consumer spending have left restaurant stocks starved for investors.
Shares of many major chains have been among the market’s worst performers this year, and some have continued to slide to new multiyear lows this week -- despite Wall Street’s big rally Monday.
Calabasas-based Cheesecake Factory Inc. slumped 92 cents, or 7.8%, to $10.80 on Tuesday, its lowest closing price since 2000. The stock is down 54% this year.
The list of eatery chains that have tumbled to low-single-digit share prices includes Ruth’s Hospitality Group (Ruth’s Chris), Benihana Inc., McCormick & Schmick’s Seafood Restaurants Inc. and Morton's Restaurant Group.
Not surprisingly, as the economy worsens Americans are eating more at home to save money. NPD Group, a market research company, said in its annual "Eating Patterns in America" report released Monday that restaurant meals now cost about three times what it takes to make a similar meal at home, on average.
When people do eat out, they are going to quick-serve and fast-food restaurants more often. Fast food now accounts for 77% of all restaurant meals, a new high, according to NPD.
Worse, restaurant trends "really turned negative in September," said Brian Moore, an analyst at Wedbush Morgan Securities in L.A. And there’s little chance they have improved this month considering the financial market and economic turmoil, he said.
In the 1990-91 recession, restaurants collectively lost 4% of food market share to grocery stores. Moore figures that in this cycle they’ve lost about 2%, "and there is more to go."
He warned this week that Cheesecake Factory may have seen its same-store sales fall by as much as 7% in the third quarter from a year earlier, worse than the 4.1% decline in the previous quarter. Moore trimmed his full-year 2008 earnings forecast to $1.04 a share from $1.07 and cut his 2009 estimate to $1.06 from $1.28.
Although he thinks Cheesecake’s stock is worth buying at these depressed levels, he slashed his 12-month price target to $14 from $18.
At L.A.-based California Pizza Kitchen Inc., third-quarter same-store sales fell 2.4%, the company said last week. That was a touch worse than Moore had been expecting. Lagging performance at new stores is hurting the chain’s revenue picture, he said.
CPK’s shares fell 19 cents to $10.31 on Tuesday, nearing the record low of $9.56 briefly reached in January.
Moore last week cut his 12-month price target for CPK to $11 from $13. He isn't recommending the stock, citing "accelerating traffic declines" and concerns about what he considers "aggressive" menu price hikes that could put off diners.
Photo: Cheesecake Factory at the Americana in Glendale. Anne Cusack / Los Angeles Times