The stock of local casual dining chains DineEquity Inc. and Cheesecake Factory Inc. settled down last week following a big boost on word that Burger King was being acquired by a private equity firm for $4 billion.
Both DineEquity and Cheesecake Factory have surged roughly 16 percent since Miami-based Burger King Holdings Inc.’s Sept. 2 announcement. The restaurant chains also are benefitting from a brighter economic outlook and encouraging sales trends.
That led one analyst last week to raise his recommendation for Calabasas-based Cheesecake Factory to “outperform” – the same rating he earlier had given Glendale-based DineEquity, parent of the IHOP and Applebee’s chains.
Raymond James & Associates analyst Bryan Elliott told clients that the restaurant industry is poised for a turnaround. There also are indications that investors are buying certain restaurant stocks as investments rather than quick trading opportunities.
“We also believe that the small quick-casual niche will continue to see strong demand growth as higher-income consumers continue to trade down from full-service (for quicker meal occasions) and up from quick-service restaurants (for better quality),” Elliott said.
He noted that that the more upscale Cheesecake Factory in particular had gained market share within its casual dining niche during the recession, while corporate cost-cutting has positioned it for greater profitability.
DineEquity received kudos for its continuing efforts to franchise more of the company-owned Applebee’s locations it inherited in its 2007 acquisition of the chain.
Both companies have taken dramatic steps this year to change their menus and revamp stores to draw back customers and increase sales per guest visit. Rather than cut prices, the restaurants are offering smaller portion options and more value-priced combination offerings.
Cheesecake Factory, known for its large portions, is seeing some success from the introduction of snack-portioned items and “small plate” options for many entrees.
DineEquity is offering new dishes aimed at kids, using movie tie-ins, and adults counting calories. It’s also remodeling IHOP restaurants in warmer color schemes, and changing the décor at Applebee’s to include photos of local schools and sports teams to give them the feel of a neighborhood hangout.
Even so, the companies are having varying levels of success, and have a way to go to return their financials to prerecession levels.
DineEquity recently reported a 22 percent drop in second quarter profit, in part due to lower revenue.
IHOP same-store sales were slightly worse than in the first quarter, but the year-over-year drop in same-store sales at Applebee’s wasn’t as bad as the previous quarter.
Cheesecake Factory is doing better, with second quarter profit up 16 percent. The company reported higher traffic and same-store sales growth for the second consecutive quarter at both its Cheesecake Factory and Grand Lux Café locations.
