Over two weeks have elapsed since the government shutdown began and with the two sides still unable to reach an agreement on the border wall, closures and furloughs are likely to persist, Jefferies said in a research note to investors. The firm noted that some retailers and restaurants may be impacted if federal employees without paychecks curtail their spending, and identified a total of eleven companies that have 4% or more of their stores in DC area locations, with Chuy’s (CHUY), Container Store (TCS), Nordstrom (JWN), Macy’s (M), Chipotle (CMG), and Cheesecake Factory (CAKE) topping the list.
POSSIBLE DISRUPTION AS GOVERNMENT SHUTDOWN CONTINUES: About 800,000 federal workers are not receiving pay and while these workers are employed in all 50 states, Washington DC, Maryland and Virginia have the highest numbers of workers impacted by the dispute, Jefferies said in a research note to investors. While the impact of the ongoing government shutdown is wide, the firm believes some retailers and restaurants in the DC metro area could also be impacted if Federal employees without paychecks curtail their spending. Jefferies identified eleven companies that have 4% or more of their stores within a 30-mile radius of 1600 Pennsylvania Avenue, with Chuy’s, Container Store, Nordstrom, Macy’s, Chipotle, and Cheesecake Factory topping the list. The others include Sonic (SAH), Hyatt (H), Marriott (MAR), Monro (MNRO), and Steven Madden (SHOO). The firm acknowledged, however, that unless the shutdown lasts much longer, impact to any of these companies’ sales is likely to be minimal. Nonetheless, even “minor sales misses can impact stocks,” it added. In a separate note, Jefferies' Laurence Alexander noted that the 2013 shutdown, which lasted 17 days, clipped fourth quarter 2013 GDP by 40bps according to the OMB. He pointed to the fact that payments to government contractors are likely to be impacted, tax refunds could be delayed, home sales could see impact from delays to federal loans/insurance, small business loans from the SBA could stall, and hiring activity could be affected by delays in verifying applicants' immigration status.
NOTABLE: Away from Jefferies' note on potential shutdown impacts, Raymond James upgraded Cheesecake Factory to Outperform from Market Perform this morning and established a $50 price target. Analyst Brian Vaccaro raised Cheesecake's Q4 earnings estimate to reflect a comparable sales growth estimate of 1.5%, versus 1% prior, due to better than expected industry sales. The analyst believes sentiment is overly negative and that initial 2019 earnings guidance could be a positive catalysts for shares into the Q4 earnings season.
PRICE ACTION: In late morning trading, shares of Chuy’s are fractionally up, Container Store’s stock has gained about 3%, and Nordstrom and Chipotle have advanced 1%. Meanwhile, shares of Macy’s have gained about 2% and Cheesechake Factory’s stock has jumped over 5%.
