Why Shares of The Cheesecake Factory Incorporated Fell 15% in June

MarketsMotley Fool

What happened

Shares of The Cheesecake Factory Incorporated (NASDAQ: CAKE) were giving investors indigestion last month, as the stock dropped 15%, according to data from S&P Global Market Intelligence.

Continue Reading Below

The casual-dining chain took a hit after reducing its guidance for the second quarter. The bulk of the slide came on June 13, when the stock fell 10%.

So what 

The Cheesecake Factory had mostly been bucking the broader negative trend in the restaurant industry but said it expects its streak of 29 consecutive quarterly comparable sales increases to come to an end in the second quarter, as it expects comps to fall 1%.

CEO David Overton blamed bad weather for the sales slump, saying that "unfavorable weather in the East and Midwest reduced patio usage." He also noted that the company continued to outperform the broader casual-dining industry and that over half of its regions, including California, Texas, and Florida, were experiencing positive comps. Overton added that the company's brand was as strong as ever and that the "underlying operating metrics remain solid."

Now what

Before the update, management had been calling for a same-store sales increase of 1% to 2%. Retailers and restaurants often use the weather as an excuse when it's convenient, but the Cheesecake Factory's invocation may be more plausible than most. It was a colder spring than normal in much of the Northeast and Midwest, which can affect outdoor dining, and the fact that comps grew across most of the country is a positive sign.

Shares fell to 52-week lows on the news. If sales bounce back in the subsequent quarter, the recent slide could be a buying opportunity.

10 stocks we like better than The Cheesecake FactoryWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and The Cheesecake Factory wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of July 6, 2017

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.