Inflationary challenges will bite into Cheesecake Factory 's stock next year, according to Goldman Sachs. Analyst Jared Garber downgraded Cheesecake Factory to sell from neutral. He also lowered his price target for the stock to $29, which reflects a downside of 12.2% over Friday's close. The stock traded 3.1% lower in the premarket. "We see macroeconomic pressure in FY23 — across the Casual Dining space, as we've noted in this report — with limited pricing power support from broader inflation and incremental traffic declines, while cost pressures are likely to remain a headwind for margins," he said in a note to clients. Garber said restaurant companies are experiencing a tougher economic backdrop as wages remain sticky and inflation pushes traffic down with consumers restricting spending. Owners have started to see early signs of customers trading down to cheaper options within the industry, he said. The Cheesecake Factory could see traffic decrease further than it already has, with the company currently underperforming the industry, based on a Goldman Sachs analysis. Pricing will also be harder to pass through next year, which Garber said will pressure margins while commodities remain inflated and labor costs remain relatively high compared with competitors. This comes as the mid- to high-income consumer will feel the lowest year-over-year growth in discretionary cash flow next year. The company's relative value declined over the past two quarters, he said. Taken together, these changes will put downward pressure on the company's topline and per-share earnings growth. It also has greater risk in a recession than peers, according to Garber. Garber also downgraded Brinker International , the parent company of Chili's and Maggiano's Little Italy, to sell from neutral. His price target of $28 implies a 20.6% downside from Friday's close. The stock fell 2.9% in the premarket. He said 2023 will bring choppy sales and margins for Chili's though he has faith in its long-term plan. For the company as a whole, Garber said there is a path to long-term growth, but it won't be linear, as near-term earnings feel pressure from negative traffic trends and concerns over retaining lower-income consumers. — CNBC's Michael Bloom contributed to this report.
