CAKE PUTs and shorting consumer discretionary via /r/wallstreetbets #stocks #wallstreetbets #investing

CAKE PUTs and shorting consumer discretionary

Shorting consumer discretionary with the rise in gas prices may be more or less consensus. But let’s talk about CAKE in particular. Like most corporate restaurant chains, Cheesecake Factory has all the wrong cost inputs to be a particularly victimized by the recent rise inflation. For them primarily cost impacts aare likely to be primarily derived from labor shortages/wage inflation and higher food costs which are now universal in the restaurant industry. But in addition to this CAKEs target demographic and physical restaurant locations may make it a more ripe ( or rotting) fruit to PUt on the SHoRTS for.

CAKE restaurants are typically located in prominent well to do suburbs … areas much more impacted by gas prices compared to urban footprint restaurants where foot traffic will remain high regardless of gas price, these areas also have a lot of upper middle class customers the same customers that are getting squeezed from rising costs themselves … who likely will be less willing to depart with their precious dollars on another 4.75% (average menu price increase per their 10k) more expensive Shepards pie or low Licious cheesecake at the infamous cheese cake restaurant chain… combine this with large retail space overheads this company will be facing some difficult headwinds in a rising cost environment comparatively.

Now the stock. Like most these corporate restaurant chains they got hammered in 2020 and then underwent some significant debt issuance and now the rooster is due to come home. With interest rates rising and the fed selling corporate debt corporate interest payments are gonna March higher … the impact on the corporate debt market should be relatively immediate… this is combined with the fact that in 2021 the 1.7% net operating profit ( less then the rate of inflation for the year). The company has around a half billion is debt notes … which may be low interest but most are set to expire in 2024 and they will have to service them with new notes because they won’t have the cash. These new notes will be at higher rates… price wise the stock is around a $2billion market cap . And they only pulled in 112 million in 2021 which arguably was one of the better operating years for restaurants with the reopening and stimulus money. Their forecast call for ~.5% revenue growth for this next year even with the price hikes … if they can only confidently guide for that growth can we expect them to actually deliver ? I personnally think that their Q2 performance will be a net loss and they will be forced to guide downward… overall I think the best is behind this company and fair market value in 2 years time will be just north of 70% of what it is today. I have a price target $31.50 to bottom out the technical trend in place and to be a 50% draw down from post pandemic peak…

Let me know ur thoughts! And if u wanna ride with me … full disclosure I am exposed via 30 April 14 $45 puts and 50 July $45 PUTs…

Submitted April 06, 2022 at 01:36AM by Queasy-Control-1261
via reddit