Sector Snap: Restaurants

Analyst Robert M. Derrington said in a note to investors that the weak economy, in which consumers are jittery about spending their dollars, an early Easter and unfavorable weather will dampen same-store sales, or sales at locations open at least a year, in the quarter.

Derrington said he also expects "aggressive" advertising, higher commodity costs and a rise in labor expenses to squeeze margins.

Derrington said despite the difficult operating environment for restaurants, CEC Entertainment Inc., which operates the Chuck E. Cheese chains, and Red Robin Gourmet Burgers Inc. could perform well due to positive sales trends.

CEC shares rose 19 cents to $31.63 in afternoon trading. Shares of Red Robin, meanwhile, climbed 31 cents to $38.90.

The analyst said O'Charley's Inc., Cheesecake Factory Inc., Texas Roadhouse Inc. and Buffalo Wild Wings Inc. could all report lower-than-expected profit in the quarter.

O'Charley's shares fell 3 cents to $11.54 while Cheesecake Factory shares dipped 7 cents to $22.70. Texas Roadhouse shares fell 20 cents to $10.34 and Buffalo Wild Wings shares rose 14 cents to $25.72.

Looking further ahead, Derrington said although the federal stimulus package will give consumers more cash to spend, "we believe guidance with upcoming earnings releases will remain cautious from most chains given ongoing tough macroeconomic and operational challenges."