Many casual-restaurant businesses having been struggling for a year or more, and yesterday, after the market closed, Cheesecake Factory (NASDAQ:CAKE) provided reason to believe that things aren't getting any better yet.
Along with the announcement that the company recently opened restaurants 106 and 107, the company announced that same-store sales will be flat to slightly negative and that revenue growth will be approximately 12%. This comes on top of the company's 1.3% decline in same-store sales during the first quarter of this year.
Cheesecake Factory is hardly the only restaurant reporting disappointing results. OSI Restaurant Partners (NYSE:OSI) has reported declining comparable-store sales in its core Outback Steakhouse brand for at least a few quarters now, but it has seen increases at a couple of its smaller concepts. And Applebee's International (NASDAQ:APPB) and PF Chang's China Bistro (NASDAQ:PFCB) have also had struggles that are leading to near-daily appearances on the 52-week-low list.
I won't pretend to have any macro-insight into what consumers can bear and why restaurants are struggling. It could be gas at $3 a gallon, or it could be competition in the restaurant space, or umpteen other factors. In any case, it makes some sense to heed these warnings and some of the ominous signs from retailers, such as Wal-Mart (NYSE:WMT) and its report that spending is clustered closer to what the company believes are paydays for its customers.
Taking these things into account doesn't mean selling retail and restaurants indiscriminately. If anything, shares of companies like Cheesecake Factory, Wal-Mart, and OSI Partners are more interesting now that they've fallen -- not less so. However, if you're holding a retailer or restaurant that has a lofty valuation and needs to meet aggressive growth targets to maintain that valuation, now is the time to re-evaluate and decide whether you want to hold through any downturn or move on. These are decisions I feel most comfortable making on a company-by-company basis, and as I'm looking at them in my own portfolio, I'd be remiss if I didn't mention them to you.
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At the time of publication, Nathan Parmelee owned shares in OSI Restaurant Partners but had no financial interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.
