A quick look at the numbers
Throughout the quarter, the management focused on increasing consumer traffic in the restaurants by advertising the value meals to the budget-constrained consumers. And yes they were successful to some extent. Darden Restaurants, Inc. (NYSE:DRI) reported an 11% surge in the top line to $2.3 billion in its fourth-quarter earnings for fiscal 2013, beating Street expectations. The rising numbers were backed by the increased consumer traffic in its Olive Garden, Red Lobster and LongHorn Steakhouse restaurants, which resulted in a 2.2% rise in comparable sales of these restaurants. Numbers were even decent in Darden’s specialty restaurant group, which includes The Capital Grille, Eddie V’s and Seasons 52.
Despite the top-line growth, Darden Restaurants, Inc. (NYSE:DRI)’s fourth-quarter earnings were not up to the mark. The rising costs and expenses have taken away all the shine from the rising top line and have resulted in a 12% drop in the company’s bottom line. Eliminating costs and purchase-accounting adjustments tied to its acquisition of Yard House USA, the earnings were $1.02 per share, which is $0.02 cents less than Street estimates. For the entire year, Darden earned $411.9 million, or $3.13 per share, and its annual revenue increased by 7% to $8.5 billion.
Foolish takeaway
For any company in the restaurant industry, an increase in consumer traffic should no doubts be the priority, and Darden Restaurants, Inc. (NYSE:DRI) is more or less on the right track. Its management is paying huge attention to increasing consumer traffic at its restaurants. For the short term, it might be a bit tough for the company to increase its profit margin. It will continue to focus on its value meals in order to attract more customers, resulting in the increase in cost of sales.
However, with time, as the US economy stabilizes and customers start spending more money, there can be a huge turnaround in the fortune of this company. Also, its new effort to revamp its menu with preferred food choices of its customers might also be fruitful for the casual-dining chain. So in the long run, this stock is worth keeping an eye on.
The article How Far Can Darden Go to Retain Its Customers? originally appeared on Fool.com and is written by Satarupa Bose.
Satarupa Bose has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide. The Motley Fool owns shares of Darden Restaurants. Satarupa is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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