Wall Street reacted swiftly to Cheesecake Factory Inc.'s announcement of a possible earnings restatement last week, but at least one analyst is advising against putting too much stock in the negative headlines.

Cheesecake stock took a beating last week, dropping almost to $22, close to its 52-week low. Toward week's end it rebounded slightly, closing at $24.76 on Aug. 17.


The Calabasas Hills company had warned of the potential restatement based on early findings of an internal investigation into old stock options practices. The review additionally caused the company to miss its second-quarter filing deadline. And the Securities and Exchange Commission is conducting its own informal inquiry into the some of the company's stock options practices.


But William Blair & Co.'s Sharon Zackfia noted that restaurant accounting is "pretty cut and dry" and suggested that investors may be seeing too much significance in the review. "Options back-dating is hot this year," she said. "We'll see what it is next year."


Zackfia added that Cheesecake's earnings slump and the accounting review are two separate issues. The sales decline "doesn't seem to be Cheesecake-specific, but an ongoing casual dining sales decline early in the first quarter," she said. "It has more to do with the economy. Ten percent or so of those customers are kind of stretching financially to eat there. When gas prices and interest rates get high they may trade down to a Panera Bread, fast casual, or down to fast food."


Across the nation, casual dining restaurant chains have suffered from a sales decline. Cheesecake has cited high gas prices as a factor in the decline, suggesting that customers are choosing to stay home and cook.


In July, investors projected that second-quarter same-store sales would be flat, or even slightly negative. For the first quarter, same-store sales indeed slipped 1.3 percent, just the second time in more than a decade that the company posted negative comps.


Chris O'Cull, vice president of equity research at SunTrust Robinson Humphrey Capital Markets, whose 2007 earnings per share estimate of $1.22 for 2007 is 8 cents below consensus estimates on Wall Street, now expects Cheesecake to make a rebound more slowly than expected.


Nonetheless, he applauded some recent changes management has implemented, such as a separate lunch menu and a pasta section on the dinner menu with lower-priced entrees around $10.99 in some markets.


"I think (the changes) are probably going to have a more long-term benefit," O'Cull said. "I think the value perception of the brand will improve over time."


O'Cull warned that second- and third-quarter results may also be lower than expected because the summer's heat wave may have reduced patio seating, which comprises about 17 percent of total capacity. He also cautioned about earnings volatility in early 2007 as the company ramps up its higher-end Grand Lux concept.


The company did not return phone calls seeking comment.


Passing Puck
Wolfgang Puck's grand experiment in casual dining with the exception of two restaurants in California and Florida and two outside of the U.S. came to a quiet close this month with a bankruptcy filing in Los Angeles.


Florica Inc., which had been known as Wolfgang Puck Casual Dining Inc., filed for Chapter 11 bankruptcy protection on Aug. 4 in U.S. Bankruptcy Court. The company formerly operated close to a dozen Wolfgang Puck Cafes that have since closed. Locations included West Hollywood, Santa Monica and Woodland Hills.


Wolfgang Puck never ran the casual dining chain, but was a shareholder until a few years ago, said Puck spokesman Robbie Vorhaus.


The company also was not associated with three other entities the celebrity chef operates: Wolfgang Puck Fine Dining, which includes Spago and other high-end eateries; Wolfgang Puck Catering, which services the Academy Awards every year; and the licensing and franchise company, Wolfgang Puck Worldwide Inc.


Worldwide licenses the chef's name for supermarket food, as well as a chain of Wolfgang Puck Express fast food restaurants. The last four remaining Wolfgang Puck Cafes, including one at Universal CityWalk, operate under franchise licenses from the company. They are financially healthy, Vorhaus said.


He believes the intent of the bankruptcy filing was to liquidate the company, despite the fact it was filed under the chapter of the bankruptcy code that ordinarily is used for reorganization.


New Location
California Pizza Kitchen Inc. opened its newest location in Short Hills, N.J. last week. The 3,200-square-foot restaurant is located in a mall, next to a Saks Fifth Avenue.


CPK, whose signature dish is barbeque chicken pizza, now has 196 restaurants. An additional 30 are operated under franchise or license agreements. The company's share closed at $28.68 on Aug. 17.


Staff reporter Emily Bryson York can be reached at (323)549-5225, ext. 235, or at eyork@labusinessjournal.com .

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