Sector Snap: Restaurants Slide As Profits In Doubt

NEW YORK (AP) — Restaurant stocks dropped Wednesday after two Wall Street analysts tried to dampen expectations for upcoming earnings reports in the sector, saying traffic and sales declines at casual dining chains have likely persisted through the first three months of the year.

Stifel Nicolaus analyst Steve West said in a note to investors that he expects sit-down chains to outperform the expectations of most analysts due to their attempts to cut costs. But West said the results are likely to be "less bad" rather than "good" since traffic and revenue continue to decline.

West noted that casual dining stocks have jumped recently but he said "we do not believe the current rally is sustainable longer term without real underlying sales growth as support."

"We would not be looking at casual dining names as investment vehicles until late 2009 at the earliest or until we can see more meaningful relief to the continued declining traffic and sales trends," the analyst added.

Raymond James analyst Bryan C. Elliott, meanwhile, cut his ratings on shares of Cheesecake Factory Inc., Cracker Barrel Old Country Store Inc., Ruby Tuesday Inc. and Steak 'n Shake Co. to "Underperform" from "Market Perform".