Shares of Darden Restaurants, Inc. (DRI) hit a new 52-week high of $57.95 in the first half of the trading session on Dec 1, based on certain cost-saving initiatives announced by the company last month, which is expected to result in $20 million in annualized cost savings. Also, in October, Darden announced impressive comps data for the month of September and marginally increased its guidance for its second quarter of 2014.
The company’s closing price of $57.52 reflects a significant year-to-date return of over 12.8%. The trading volume for the session was nearly 2.0 billion shares.
On Nov 18, the company announced several strategic actions in order to increase focus on restaurant operations and enhance guest experience. The company intended to streamline its support functions that benefits the restaurants and trims down overhead costs.
The company has also announced that it would eradicate its operations field management at Olive Garden and LongHorn Steakhouse as well as its aviation operations. The company also announced it was eliminating 85 jobs, which includes 60 existing and 25 open positions. The changes will affect its marketing, development, aviation, external affairs and field operations departments. These initiatives will result in cost savings and will also provide Darden a competitive edge.
Meanwhile, Darden’s turnaround efforts appear to be yielding results. Darden reported in October that the U.S. comps for most of its restaurant chains in September grew year over year. Also, the restaurateur marginally increased its earnings guidance for the second quarter. It now expects earnings at the higher end of the previously announced guidance of 26 to 28 cents. Buoyed by this optimistic view, Darden’s share price has been gaining momentum since then.
Notably, Darden completed the sale of the Red Lobster segment in Jul 2014, leaving it with three restaurant chains — Olive Garden, LongHorn Steakhouse and The Specialty Restaurant Group.
Olive Garden comps grew 0.6% in September, better than the decline of 2.6% in Sep 2014. Also, LongHorn Steakhouse comps rose 3.2%, topping the 2.9% growth achieved last year. Except the 0.3% decline at the Bahama Breeze, all the restaurants of The Specialty Restaurant Group recorded 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 — launched to bring a turnaround in the restaurant chain’s business — seems to have begun reaping benefits. The 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.
Darden Restaurants currently has a Zacks Rank #2 (Buy). Better-ranked stocks in the same industry include DineEquity, Inc. (DIN), BJ's Restaurants, Inc. (BJRI) and Ruby Tuesday, Inc. (RT). All these stocks sport a Zacks Rank #1 (Strong Buy).
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