Darden Restaurants, Inc. (DRI), Chuy’s Holdings Inc (CHUY): Cash In On Eating Out

Who says chickens can’t fly?

“…we rolled out a new menu strategy of selling wings by portion at all of our restaurants … We expect this strategy, along with lower traditional wing costs versus last year, to improve our cost of sales percentage.”

The chain has almost 1,000 locations, but as Ms. Smith stated on the Q2 earnings call, the company is “actively building the infrastructure” to support another 700 restaurants in North America. And it does carry a PE ratio of close to 33, a tick above its historical average; however, at the current rate the company is growing, paying a little bit of a premium should give you market-beating returns for years to come.

2 restaurants to buy, 1 to watch

Profitable growth is central to sustained returns, and Chuy’s is well positioned with its menu strategy and a compelling concept that draws a lot of foot traffic. Similarly, Buffalo Wild Wings (NASDAQ:BWLD) is evolving its pricing strategy to be both more customer friendly and profitable as chicken prices fluctuate. The main message is that both offer substantial future growth.

Darden, on the other hand, is caught in a defensive position. It will be challenged to compete on price to the detriment of the bottom line — as evidenced by falling net income and operating margins — for the foreseeable future. As one of the best operators in the industry, it’s worth watching, but it’s no blue plate special at today’s prices.

Jason Hall has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings. The Motley Fool owns shares of Buffalo Wild Wings and Darden Restaurants (NYSE:DRI). Jason is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Cash In On Eating Out originally appeared on Fool.com is written by Jason Hall.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.