According to Goldman Sachs inflationary challenges will eat into Cheesecake Factory’s stock next Year. Jared Garber, analyst, has downgraded Cheesecake Factory to sell. He also decreased his price target on the stock to $29 which represents a downside by 12.2% from Friday’s close. The stock traded 3.1% higher in the premarket. He stated in a note that he saw macroeconomic pressure in FY23 across the Casual Dining sector. This was due to limited pricing power support from broader inflation. In addition, there has been an incremental decline in traffic. Cost pressures will likely remain a headwind for margins. Garber noted that companies are dealing with a tougher economic climate as wages remain stagnant and inflation pushes down traffic, while consumers limit their spending. According to Garber, owners are starting to see signs that customers are shifting to cheaper products within the industry. According to a Goldman Sachs analysis of Cheesecake Factory, the company is currently underperforming in the industry. This could lead to further traffic declines. Garber also said that pricing next year will be difficult to understand. He stated that this will put pressure on margins, while commodities and labor costs are still high. This will be because consumers with mid- to high incomes will see the lowest year over year growth in discretionary cash flows next year. He stated that the relative value of the company has fallen over the past quarters. These changes combined will cause a decline in the company’s topline and per share earnings growth. Garber says it also faces greater risks in a recession that its peers. Garber also lowered the price target for Brinker International, parent company of Chilis and Maggiano’s Little Italy. His price target of $28 suggests a 20.6% decline from Friday’s close. The stock lost 2.9% in premarket. While he predicted that Chili’s 2023 would see lower margins and sales, he still believes in its long-term plans. Garber indicated that there is a path for long-term growth for the entire company, though it will not be linear due to negative traffic trends and worries about keeping lower-income customers. Michael Bloom from CNBC contributed to this report.

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