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Why Cheesecake Factory Inc Stock Crumbled Today

By Jeremy Bowman – Jun 13, 2017 at 1:05PM

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Shares of the casual-dining chain took a hit after the company warned investors about sales growth.

What happened

Shares of Cheesecake Factory Inc (CAKE 0.36%) fell on Tuesday after the casual-dining chain issued a warning on second-quarter sales. As of 12:49 p.m. EDT, the stock was down 9.8%.

So what 

The dining specialist updated its comparable sales guidance for the current quarter, saying it expected same-store sales to fall 1%, down from prior guidance that called for an increase of 1%-2%. 

The original Cheesecake Factory cheesecake

Image source: Cheesecake Factory

CEO David Overton said despite the reduction in guidance, the company has continued to outperform the broader casual dining industry thus far in the quarter, and over half of the company's regions are seeing comparable-sales growth. However, he noted unfavorable weather in the East and Midwest had caused reduced patio usage. 

The update comes as the company is presenting at two investor conferences this week, including one this morning.

Now what

A 1% drop in comparable sales is nothing to panic over, and weather can have an impact on restaurants. It's often cited as an excuse by management. However, investors may be more concerned about the broader implications of the warning from Cheesecake Factory. The overall restaurant industry -- including the casual dining sector -- has struggled over the past year, and declining mall traffic may also represent a long-term headwind for the company. 

Cheesecake Factory has been one of the stronger stocks in the sector, but today was its biggest drop in eight years. Keep an eye an comparable sales for the rest of the year to see if the company can bounce back or if this is a longer-term trend.

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.

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