A Sweet Beat and a Wearables Rally Came With Reasons to Pause

Key Points

• Garmin and The Cheesecake Factory both delivered strong earnings beats and raised guidance, sending their shares sharply higher this year.
• Cheesecake Factory's comp sales growth was partly driven by a non-recurring loyalty app promotion, and its stock trades at a premium with limited analyst upside.
• Garmin's second-half guidance implies margin contraction due to fading tariff refunds, rising memory costs, and a declining Outdoor segment despite fitness growth.

Two of the cleanest earnings beats of the quarter came from a pair of under-the-radar sources: Garmin Ltd. NYSE: GRMN and The Cheesecake Factory Inc. NASDAQ: CAKE. Both companies beat estimates, raised guidance, and saw a significant stock price pop following their releases.

But even the cleanest beats often come with caveats, and these two companies gave hints in their conference calls that the party might be entering its “turn the music down” stage. Analysts and investors are now chasing the tape, and some portfolio trimming might be in order following these massive gains.

Cheesecake Factory: Comp Growth Juiced by Non-Recurring Loyalty Rewards

The stock chart of The Cheesecake Factory looks more like that of a next-gen semiconductor company than a restaurant chain with fewer than 500 locations. Shares are up more than 100% year-to-date (YTD), including more than 25% in the last month alone. And it's earnings, not hype, that have fueled the impressive run.

The latest quarter was another slice of sweetness for CAKE, following its impressive performance in Q1. The Q2 2026 numbers released on July 28 showed year-over-year (YOY) revenue growth of 7.7% and earnings per share (EPS) growth of 19.5%. It was the company’s first-ever $1 billion sales quarter, and management raised both full-year and Q3 revenue guidance targets. Open and shut case, right? Not exactly.

Second quarter comp sales grew 5.8%, following a 1.6% advance in Q1. That’s an impressive figure, but the mix was something management implicitly called out: 3.0% on pricing, and 2.8% on traffic. Management noted that traffic was driven by the revamped Cheesecake Rewards app, which offered a free piece of cheesecake to new users. Loyalty rewards programs are often effective at driving repeat business, but a promo-driven initial surge isn’t sustainable. Now that the promotion has been redeemed, app-driven traffic is likely to decay toward a more sustainable baseline, which must be factored into projections over the next few quarters (especially if food inflation remains sticky).

Additionally, the Street is simply running out of room. Only Argus Research has a price target above CAKE's current market price, with the consensus target of $79.81 representing a downside of more than 20%. The stock already trades at a premium to its industry (24 times forward earnings vs. the hospitality average of 17 times), which has also triggered recent insider selling.

Garmin: Projecting Margin Contraction in Second Half of 2026

Garmin has enjoyed a second life after GPS thanks to its assortment of wearables and fitness watches. The stock is up more than 40% YTD, and 20% of that gain has occurred in the last week following its Q2 2026 earnings explosion. The company smashed top and bottom-line expectations in Q2, growing revenue 11.4% YOY with the fitness segment generating 25% YOY sales growth. Garmin raised full-year EPS and revenue guidance to $8.01 billion and $10 per share, respectively.

But when breaking down the company’s second-half expectations, we can see subtle hints that margin growth is waning. The implied second-half revenue of $4.28 billion represents 9.8% YOY growth, with an expected operating margin of 26.3%. This would be lower than the 27.6% operating margin the company earned in the same period last year, and there are two key reasons for the expected margin decline:

• Tariff refunds totaled $21 million, adding 100 basis points to the company’s gross margins. Obviously, tariff refunds are a non-recurring line item, and this one-time margin boost will fade in the coming quarters.

• Garmin products require many of the same high-speed memory features that AI hyperscalers are gobbling up, especially NAND and DRAM. Management flagged high memory costs as a potential margin drag for the rest of the year and into 2027.

Another potential red flag is the Outdoor segment's performance, which has traditionally been the margin driver supporting other segments. Outdoor revenue dipped 2% YOY in Q2 to $482 million, a moderately concerning decline given the segment added $2.05 billion in fiscal 2025 and posted an operating margin over 34%. Fitness is now the growth driver, but that space is filled with fierce, well-funded competitors like Apple Inc. NASDAQ: AAPL and Oura Health.

Much like CAKE shares, analysts are now chasing the tape with GRMN as well. Following the earnings release, Barclays and Morgan Stanley raised their GRMN price targets to $297 and $289, respectively. The Morgan Stanley target has already been surpassed, and the stock is currently about 1% below the Barclays target. Both management and the Street are saying the upside is flattening, suggesting trimming rather than accumulating is the best course of action.