Restaurant Shares Plunge as Sales Slow and Costs Rise

Restaurant stocks took some heat on Wall Street on Thursday amid concerns about recent sales trends.

A handful of industry analysts this week, including Salomon Smith Barney’s Mark Kalinowski, said they expected May sales to have been sluggish compared with a year ago.

“I wouldn’t be surprised to see [investors’] tone in general become more cautious in this sector,” Kalinowski said.

Deutsche Banc Alex. Brown restaurant analyst John Glass warned that May sales were slowing in the casual-dining sector, which is being hit by rising costs as well.

Glass trimmed his fiscal fourth-quarter earnings-per-share estimate for Brinker International by 1 cent to 41 cents and the fiscal-year estimate to $1.41 from $1.42.

He lowered his estimate of comparable-store sales for Brinker’s Chili’s chain in May and June to a 3% rise from 4% to 5%.

Shares of Brinker (ticker symbol: EAT) fell $2.10 to $24.55 on the New York Stock Exchange on Thursday.

Shares of CEC Entertainment (CEC), which operates Chuck E. Cheese’s restaurants, plunged $10.60 to $43.30 Thursday after the chain warned that April and May sales were weaker than expected. CEC said warmer weather kept customers away.

William Baldwin, a restaurant analyst for Baldwin Anthony & McIntyre, said stocks in the sector have had a good run over the last year. Now, he said, it’s “going to be a tougher, more challenging environment here for the next several quarters,” with a weaker economy and higher energy costs.

Other restaurant stocks sliding Thursday included Darden Restaurants (DRI), parent of Red Lobster and Olive Garden, which lost 81 cents to $27.90; Applebee’s International (APPB), down $3.32 to $39.78; Cheesecake Factory (CAKE), down $1.19 to $34.77; and California Pizza Kitchen (CPKI), down $2.40 to $22.65.

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Trouble on the Menu?

A number of restaurant stocks tumbled Thursday amid worries that May sales were weaker than expected. Smaller restaurant chains, in particular, had been hot stocks over the last year as investors bet that consumers would continue to dine out--even amid a weaker economy.

*

Standard & Poor’s index of 16 small-capitalization restaurant stocks, weekly closes and latest*

Thursday: 191.62

*Index includes Applebee’s, Cheesecake Factory, P.F. Chang’s and Sonic

Source: Bloomberg News