Sector Snap: Casual Dining
NEW YORK --Casual dining shares fell Wednesday after a Friedman, Billings, Ramsey analyst said a difficult environment for casual dining companies is likely here to stay.
Analyst Howard Penney said in a note to investors that high gas prices and the credit crunch have created a weak consumer who is cutting back on spending.
"The headwinds that most consumers face are strong, and we are in a period of unchartered territory," he said, citing the recent decline in home prices.
Meanwhile, commodity prices have skyrocketed, and labor costs are higher because of a hike in the federal minimum wage.
The analyst said investors appear to be buying into the sector as a bet that government intervention will have a positive effect on consumer spending.
But, he said, he is not convinced that plans like the government stimulus package will have a lasting effect.
"We remain concerned that this benefit might not be as significant as in the past or very sustainable given the tough times," he said.
Penney said the companies that may be affected most by consumer spending cuts will be those with a large number of locations in states hardest hit by the housing crisis -- California, Arizona and Florida.
He said P.F. Chang's China Bistro Inc., California Pizza Kitchen Inc. and Cheesecake Factory Inc. are the most exposed to those areas.
Penney also downgraded shares of P.F. Chang's to "Underperform" from "Market Perform."
Shares of P.F. Chang's dropped $1.75,or 5.7 percent, to $29 in late morning trading, while California Pizza Kitchen shares fell 76 cents, or 5.4 percent, to $13.39. Cheesecake Factory shares dipped 85 cents, or 3.8 percent, to $21.80.
He said Red Robin Gourmet Burgers Inc. has the least exposure to troubled regions.
Red Robin shares fell $1.14 to $37.52. 