Darden Restaurants, Inc. (DRI), Chipotle Mexican Grill, Inc. (CMG): Is America Simply Bored of This Restaurant?

Page 1 of 2

Darden Restaurants, Inc. (NYSE:DRI)

Darden Restaurants, Inc. (NYSE:DRI), the parent company of Olive Garden, Red Lobster and LongHorn Steakhouse, has stalled out over the past three years, despite bouncing back strongly from the depths of the recession. Once a strong growth stock in the 1990s, Darden’s full-service diners are now being abandoned in favor of fast growth bistro chains such as Chipotle Mexican Grill, Inc. (NYSE:CMG) and Panera Bread Co (NASDAQ:PNRA), which provide high quality fast food at a cheaper price.

Although Darden’s third quarter earnings topped Wall Street estimates, the company is still struggling to stave off negative same-store sales growth and declining profits. Should investors abandon this former icon of the American restaurant industry for moreprofitable restaurants instead?

Third Quarter Earnings

For its third quarter, Darden Restaurants, Inc. (NYSE:DRI) earned $1.02 per share, or $134.4 million, an 18% decline from the $1.25 per share, or $164.1 million, it earned the previous year – but it topped the analyst estimate by a penny.

Revenue grew 5% from $2.16 billion to $2.26 million, matching the consensus estimate.

Sales Growth

Darden’s combined same-store sales, primarily generated by its three flagship restaurants, slid 4.6%. Darden Restaurants, Inc. (NYSE:DRI) attributed the drop to adverse winter weather conditions in December and February. The company’s same-store sales drop of 9% in February, accompanied by a 7% decline in store traffic, was its steepest monthly loss during the quarter. As a result, same-store sales dropped at all three brands.

Longhorn Steakhouse’s revenue rose 6.9% to $332 million, due to the addition of 42 new locations. Same-store sales dropped 1.6%.

Meanwhile, Olive Garden’s revenue edged up 0.6% year-over-year to $962 million. Darden added 42 new Olive Garden restaurants, which contributed to the positive sales growth, a reversal of its decline over previous quarters. However, same-store sales still slid 4.1%.

Red Lobster fared the worst, logging a 6.0% drop in revenue to $669 million, while same-store sales plunged 6.6%. Darden only added three new Red Lobster restaurants during the quarter.

However, Darden’s specialty restaurants – which include Yard House, Bahama Breeze, Seasons 52, Eddie V’s and The Capital Grille – posted the strongest growth, with revenue soaring 61% to $287 million. During the quarter, Darden added 43 Yard House, five Bahama Breeze, seven Season 52 and three The Capital Grille locations. All of its specialty restaurants posted positive same-store sales growth, except for Bahama Breeze, which declined -0.3%.

Although Darden’s rapid expansion has kept revenue flowing in, there are some problems with the company’s key financial metrics.





Since the end of the recession, expenses and debt have risen, while free cash flow and cash have decreased. Therefore, it might not be prudent to continue expanding simply to generate more revenue while these metrics are all apparently headed in the wrong directions.

Being everywhere is not a good thing

The main problem with Darden Restaurants is the public perception of its three flagship brands. Driving around any town in America, two of the brands – Olive Garden and Red Lobster – seem to be next to every strip mall or interstate highway. Simply put, they are as common a sight as McDonald’s or Taco Bell, but more expensive.

That’s why we’re seeing stronger growth from its specialty restaurants, as well as softer declines from LongHorn Steakhouse, which is smaller and has less saturation than Olive Garden or Red Lobster.

Shifting trends in dining

Two companies have changed the American perception of dining more than any others: Chipotle Mexican Grill, Inc. (NYSE:CMG) and Panera Bread (NASDAQ:PNRA). Prior to the arrival of these two brands, restaurants were generally classified as ‘fast food’ – like McDonald’s – or ‘full service’ – like Olive Garden.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!