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Jun 13, 2017

S3 Research: Cheesecake Factory Down 10%, Short Profits up $49 million

The Cheesecake Factory Inc. (CAKE US) lowered its 2nd quarter sales guidance to a decline of 1% from an increase of 1%-2%. CAKE cited “volatility in week to week sales trends” and “unfavorable weather that reduced patio usage.” CAKE’s stock price was down 10% on the news today, closing at $52.58/share.

CAKE is the 8th largest short in the U.S. Restaurant Sector with short interest of $497 million. CAKE’s short interest has been growing much faster than other stocks in the sector, increasing by $65 million in the last 30 days, the 5th largest increase in short interest in the sector. CAKE is also the only stock in the top ten shorted stocks in the Restaurant Sector which has a year-to-date profit, up $59.3 million, or 11.87%, for the year.

CAKE short sellers have been steadily increasing their exposure since mid-2016, climbing from $258 million at the end of April 2016 to $504 million by Mid-March 2017. Short interest looks to have plateaued at the $500 million level with no significant increase in short activity today, in spite of the negative news. Short interest has averaged $496 million in 2017, after averaging $253 million since 2010. 

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Head of Research, S3 Partners

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