Share price of Darden Restaurants, Inc. (DRI) immediately increased 1% after the company provided an update on growth in domestic comps for the month of September and its fiscal second quarter 2014 expectations.
U.S. comps for most of its restaurant chains grew year over year. Also, the company marginally increased its earnings guidance for the fiscal second quarter. It now expects earnings at the higher end of the previously announced guidance of 26 cents to 28 cents. Buoyed by this optimistic view, Darden’s share price has been gaining momentum since then.
We remind investors that Darden had completed the sale of its Red Lobster segment in Jul 2014. This leaves it with three restaurant chains: Olive Garden, LongHorn Steakhouse and The Specialty Restaurant Group.
Comps at Olive Garden grew 0.6%, better than the decline of 2.6% in Sep 2014. Also, comps at LongHorn Steakhouse rose 3.2%, topping the 2.9% growth achieved last year. Except Bahama Breeze that declined 0.3%, all the restaurants of The Specialty Restaurant Group experienced year-over-year growth. Comps at The Capital Grille, Yard House, Seasons 52 and Eddie V's were up 6.4%, 3.8%, 1.3% and 4%, respectively.
It seems the efforts to grow and develop LongHorn Steakhouse and Specialty Restaurants are yielding positive results. Moreover, the company’s Olive Garden Brand Renaissance plan – that was launched to bring a turnaround in the restaurant chain’s business – seem to have begun reaping benefits. The Olive Garden Brand Renaissance plan includes core menu innovation, simplification of restaurant operations and re-imaging. The company expects the plan to reignite traffic growth, enhance guest experience and support margin expansion.
Despite Darden’s efforts, Starboard – an 8.8% stakeholder in the company – is currently questioning Darden’s working strategy.
Other Stocks to Consider
Darden currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Burger King Worldwide, Inc. (BKW), Chipotle Mexican Grill, Inc. (CMG) and Jamba, Inc. (JMBA). While Jamba sports a Zacks Rank #1 (Strong Buy), Burger King and Chipotle Mexican Grill carry a Zacks Rank #2 (Buy).
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