The casual restaurant industry is considered a pretty good augur of economic strength, but so far it’s not been all bad news for L.A.’s big chains despite a marked fall in consumer dining.
Big drops in same-store sales at Darden Restaurants Inc. the operator of the Olive Garden and Red Lobster chains had investors exiting last week from the casual dining sector.
And, locally, IHOP Corp. suffered, with its shares shedding 14 percent amid efforts by the Glendale chain to integrate newly acquired Applebee’s International Inc. Yet, California Pizza Kitchen Inc. and Cheesecake Factory Inc. surged, gaining 7.4 percent and 11 percent, respectively.
Calabasas-based Cheesecake got a boost after a fund affiliated with investor Nelson Peltz bought a 14 percent stake in the company. Peltz is known to shake up companies, leading to a rise in share price.
California Pizza Kitchen and Cheesecake also were being lauded by Wall Street analysts as likely long-term standouts, even as competitors suffered from diners’ increasing unwillingness to part with their wallets amid rising interest rates and falling home values.
“The decline in the casual dining sector has come faster than most of us thought it would,” said MKM Partners LLC analyst Stephen Anderson.
Four years ago California Pizza Kitchen was in the dumps as diners seemed to tire of its once innovative menu. But then founders Rick Rosenfield and Larry Flax returned and the Los Angeles-based chain has prospered with new menu offerings and improved service. The chain expects to open 17 locations in 2008, just slightly less than the 20 the company opened this year.
Cheesecake Factory has been considered a sluggish performer on Wall Street despite its 140 locations that feature huge portions, big lines and an average gross of about $11 million each. Its stock has been relatively stagnant.
Peltz could bring some big changes. He has bought stakes in H.J. Heinz Co., where he has pressured the board to change strategies to improve stock price. It’s unknown what Peltz has in mind for Cheesecake but one option might be raising prices given solid foot traffic.
