Is Morgan Stanley Experiencing Deja Vu After Cheesecake Factory's Q4 Earnings?

In a report published Thursday, Morgan Stanley analyst John Glass reiterated an Equal-Weight rating on Cheesecake Factory (NASDAQ: CAKE), but lowered the price target from $50.00 to $45.00.

In the report, Morgan Stanley noted, "CAKE also lowered the mid point of FY15 guidance by 11% (to $2.08 - $2.20 vs $2.35-$2.45 prior), despite raising SSS assumptions to 1.5-2.5% (vs 1-2% prior) given strong 1Q15 SSS performance (3-4% guidance provided by mgmt). The offset mostly relates to a lower FY14 base and additional labor pressures.Since group medical claims ran well above forecast in '14 (50% higher claims activity and 80% higher $ amounts), CAKE forecasts health care costs to be flat as a percent of sales in FY15 (+6% in dollar terms)."

The report continued, "CAKE also increased its hourly wage growth expectations to + 3% Y/Y (vs +2% prior), resulting in $10-12M of wage pressure($4M from minimum wage). CAKE did not change its food cost inflation expectation, and still expects dairy to recover about ¾ of the increase seen in '14 (dairy prices are tracking down 33% in Jan) and 1-2% inflation overall (2-3% at the restaurant level). Note that 42% of CAKE's commodity basket is currently contracted for FY15, and CAKE has discussed the possibility of hedging commodity exposure (esp manufacturer's cream) that was typically not contracted before."

Cheesecake Factory closed on Wednesday at $53.04.