Restaurants turn to coupon promotions

Cheesecake Factory (NASDAQ: CAKE) logo
Cheesecake Factory (NASDAQ: CAKE) logo

It's a bad sign for restaurants: they're handing out coupons in an effort to lure reticent diners, who are nervous about gas prices, the economy and, of course, housing.

According to the USA Today, Ruby Tuesday is offering $5 off two dinner entrees, IHOP (NYSE: IHP) franchisees are handing out two-for-one coupons, Darden's (NYSE: DRI) Smoky Bones is giving diners $5 off $15 orders, and T.G.I. Friday's is giving $5 "Bonus Bites" to those who purchase $25 gift cards.

So what's an investor to do? High gas prices and housing woes are most likely to weigh on the minds of middle-class consumers -- a wealthier diner probably isn't going to let his restaurant plans be interrupted by transportation costs.

Cheescake Factory (NASDAQ: CAKE) has seen its share prices slide as traffic growth has slowed. The company has scaled back its expansion plans and is using the extra cash to repurchase stock. Higher dairy prices have affected gross margins but, long-term, there's a lot to like here. The company has a strong brand, lots of room for expansion, and a much higher average check than a lot of the fast casual chains that are struggling.

A mall operator's efforts to prevent the chain from opening in a competitor's location underscores the company's strength: Cheesecake Factory is a destination in a way that lesser chains like Applebee's and Friday's aren't.