Darden Restaurants Inc (DRI) recently announced the opening of a 6,200-square foot LongHorn Steakhouse restaurant in Tupelo, Miss. The restaurant accommodates 240 guests and industry veteran Jennifer Hathcock is the managing partner.
LongHorn Steakhouse is a full-service restaurant chain offering fresh steaks, salmon, shrimp, chicken, ribs, pork chops and burgers. Darden acquired the restaurant chain in October 2007 as part of the RARE Hospitality International acquisition.
The first LongHorn Steakhouse debuted in Atlanta 30 years ago and has been growing steadily since then. In 2011, LongHorn Steakhouse opened 23 net new restaurants. In fiscal 2012, management expects to open 30–35 LongHorn Steakhouse restaurants. Including other brands, Darden expects to open 80–90 new restaurants for fiscal 2012. Currently, the brand operates more than 350 restaurants in 33 states.
Compared to the other core brands of Darden including Olive Garden and Red Lobster, Longhorn Streakhouse is better positioned to sustain its growth momentum. LongHorn Steakhouse’s fourth quarter U.S. same-restaurant sales increased 6.0%, backed by the increased media support.
LongHorn Steakhouse has exceeded the industry benchmark for the tenth consecutive quarter. In our opinion, Darden management remains keen on boosting its better performing brands and expanding aggressively. In the first quarter of 2012, U.S same-restaurant sales at Longhorn Steakhouse are expected to escalate 4.8%.
Apart from new openings, the brand also remodeled 112 existing restaurants in fiscal 2011. Darden continues to focus on remodeling to gain momentum and plans to remodel more than 125 restaurants in 2012. The company expects to finish the remodeling program by 2014.
We believe new restaurant openings are indicative of the company’s efforts to gain market share in the gradually recovering restaurant industry.
However, increased competition from other peers such as Brinker International Inc (EAT) and Red Robin Gourmet Burgers Inc (RRGB), and spike in food costs still remain headwinds.
Darden currently retains a Zacks #3 Rank, implying a short-term Hold rating. We also reiterate our long-term Neutral recommendation.
Darden is expected to release its first quarter 2012 earnings results by September 26, 2011. Hurricane Irene is expected to impact the company’s first quarter 2012 earnings by 2 cents and same-store results at Red Lobster, Olive Garden and LongHorn Steakhouse restaurants by 20 to 30 basis points. We expect the company to report first quarter earnings in line with the Zacks Consensus Estimate of 78 cents.
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