Please ensure Javascript is enabled for purposes of website accessibility

Why Cheesecake Factory, BJ's Restaurants, and Bloomin' Brands Stocks Fell 10% (or More) This Morning

By Rich Smith – Updated May 13, 2020 at 1:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Big Brother is ready to take your order now.

What happened

It's Wednesday, and restaurant stocks are in free fall. As of 12:40 p.m. EDT, shares of The Cheesecake Factory (CAKE -2.44%) are down 8.1%, BJ's Restaurants (BJRI -4.02%) has fallen 9.2%, and Bloomin' Brands (BLMN -4.16%) is positively wilting -- down 10.2%. Why?

So what

There are a couple of specific factors at play in the restaurants sector today -- and one broad theme that could be dragging the rest down. Specifically, Bloomin' Brands suffered a reduction in price target this morning, with analysts at Loop Capital (reports cutting the shares' estimated value to $15. That sounds like bad news, but in fact, Loop notes that it's actually positive on the Outback Steakhouse operator's fortunes (and rates the stock a buy).

Same-store sales dropped 63.5% at Outback in late March but were down only 38% in the first week of May and appear to be trending toward "just" a same-store sales decline of 17% in the past week. Thus, Bloomin' Brands is a story of things being bad... but getting gradually less bad over time.

Eye in the sky looking down on a city

Image source: Getty Images.

The story with Cheesecake Factory is a bit less optimistic. Here we find an analyst -- Stephens Inc. -- actually downgrading the stock to underweight. The firm is warning that because Cheesecake Factory has 65% of its stores located in malls that are suffering foot-traffic declines due to closed department stores and theaters, this is likely to translate into lower foot traffic at Cheesecake Factory, as well. In Stephens' view, Cheesecake Factory's future is "inseparable from [that of] the regional mall," and malls are "facing an existential crisis." 

That's not good news for Cheesecake Factory.

Now what

But what about BJ's Restaurants -- and what about restaurants, in general? Here we turn to the macro story. In Washington State, the government has announced new requirements for restaurants that want to reopen for business after COVID-19-inspired shutdowns.

Most of the requirements are familiar to most of us by now and are entirely logical and expected -- making hand sanitizer available to patrons, seating fewer people per table, separating tables by the recommended six-foot distance, and so on. The biggie, though, is a requirement buried in the middle of Washington state's list: "If [a restaurant] offers table service, create a daily log of all customers and maintain that daily log for 30 days, including telephone/email contact information, and time in. This will facilitate any contact tracing that might need to occur." 

On the one hand, this requirement was certainly well-intended as a means of informing restaurant patrons afterwards if it's discovered that they were exposed to coronavirus on a recent visit. On social media, however, this new requirement is blowing up -- and blowing back on both the state government and the restaurant industry. Potential restaurant customers are expressing their fear that this is a "Big Brother" kind of a move that will hand over personal information to the state so that it can monitor their movements. 

The more that spin on the news becomes "the story," and the more states try to follow Washington state's lead, the more potential customers it will scare away, and the worse things will get for restaurant stocks.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends BJ's Restaurants. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

BJ's Restaurants, Inc. Stock Quote
BJ's Restaurants, Inc.
$23.89 (-4.02%) $-1.00
Bloomin' Brands Stock Quote
Bloomin' Brands
$18.42 (-4.16%) $0.80
The Cheesecake Factory Incorporated Stock Quote
The Cheesecake Factory Incorporated
$28.43 (-2.44%) $0.71

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.