Why The Cheesecake Factory's Stock Lost 13% in August

MarketsMotley Fool

What happened

Shares of The Cheesecake Factory (NASDAQ: CAKE) got sent back to the kitchen last month after the restaurant chain posted disappointing second-quarter earnings. According to data from S&P Global Market Intelligence, the stock finished August down 13%.

Continue Reading Below

The stock fell 6.2% on Aug. 3 after its earnings release, and it continued to slide from there as the chart below shows.

So what

The casual dining chain actually beat analysts' bottom-line estimates in the quarter, with earnings per share of $0.78 -- even with results from a year ago, but better than the consensus expectation of $0.76.

However, revenue increased just 2% to $569.9 million, below the consensus for $570.3 million, and comparable sales slipped 0.5%. Management had previously warned that sales would be weak due in part to cooler weather in the Midwest and Northeast. "In spite of the softer sales, our operators effectively managed the business, maintaining solid restaurant margins to protect profitability,"  said CEO David Overton.

The company also lifted its quarterly dividend by 21%.

Now what 

Blame for The Cheesecake Factory's recent share price slide may also be traced to the general malaise in the casual-dining industry, as many companies in the sector have fallen by double-digit percentages over the last three months. Cheesecake Factory is down 32% over that period.

The same-store sales decline broke a 28-quarter streak of increases, though a 0.5% pullback doesn't seem like a reason to panic. Cheesecake Factory did not offer guidance in the report, but the current quarter should test management's excuse about the weather. With a P/E ratio of just 13 now, I'd expect that the stock is near a bottom, if it hasn't hit one already.

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 September 5, 2017

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