According to a filing with the SEC, William Lewis Jr., who serves on the Board of Directors at Darden Restaurants, Inc. (NYSE:DRI), purchased 11,000 shares of the stock on January 11th at an average price of $44.91 per share. This gives Lewis almost 51,000 shares of Darden total in his direct holdings, so this buy is a substantial percentage increase. Darden is a table service restaurant company whose brands include Olive Garden, Red Lobster, LongHorn Steakhouse, and Capital Grille.
Insider purchases generally aren’t rational from a pure economic perspective: the insider is already tied to the company’s prospects, and the principles of diversification suggest that he or she should avoid buying more shares. This is why we like to track insider purchases: while they don’t always result in gains, they do on average (read more about studies on insider trading) and we think that this is because buying signifies confidence in the stock. There were significant insider sales at Darden Restaurants, Inc. last September and October, but at that time the stock price was over $55. See a history of insider purchases and sales at Darden.
The second quarter of Darden’s fiscal year ended in November. Revenue was up 7% from the same period in the previous fiscal year, though this was entirely due to the addition of new locations (both organically and from the Yard House acquisition); same-restaurant sales actually fell 3%. In turn, same-restaurant sales fell due to guest counts with increased check size partially offsetting that metric. There was considerable growth in expenses as well: gross margins were essentially unchanged, with higher SGA expenses resulting in the company reporting 26 cents per share in earnings, down from 41 cents per share a year earlier.
Darden Restaurants, Inc. now trades at 13 times trailing earnings, suggesting that the market expects very little earnings growth going forward. As we’ve seen, the recent performance has not been good and it’s particularly troubling to see lower same-restaurant sales in a period when the U.S. economy has been doing fairly well and many other restaurants are experiencing rapid growth. Darden does pay a high dividend yield, at 4.5% at current prices. As a result it might be an attractive target for income investors. Renaissance Technologies, founded by billionaire Jim Simons, initiated a small position in the stock during the third quarter of 2012 (check out Simons's stock picks).
How does Darden stack up against other restaurant stocks?