Cheesecake Factory Inc (NASDAQ: CAKE) has no catalyst or recovery ahead given its overexposure to malls, according to Stephens.
The Cheesecake Factory Analyst
James Rutherford resumes coverage of Cheesecake Factory's stock with an Underweight rating and $14 price target.
The Cheesecake Factory Thesis
Among the 206 Cheesecake Factory locations across the U.S., 65% are located in traditional regional or super-regional malls, Rutherford wrote in the note. Unfortunately, many of these malls are likely to suffer declining foot traffic as major department stores and movie theatres face "an existential crisis."
The restaurant chain's struggles didn't start with the COVID-19 pandemic as the past five years have been challenging. Most notably, the company has failed to show a single quarter of positive traffic dating back to early 2015.
Cheesecake Factory ended April with $260 million of cash while many locations were operating at break-even cash flow levels from off-premise orders at around $4 million. Even if the company catches up on missed rent payments, it has enough liquidity for "well over a year" at current levels.
However, Rutherford said the next few years are likely to be "much worse" than the past five years as the long-term fate of the chain is "inseparable from the regional mall."
CAKE Price Action
Shares of Cheesecake Factory were trading lower by 7% at $17.98.