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
blog comments powered by Disqus
Insider Monkey Headlines
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

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines 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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!