Have you eaten at an Olive Garden lately? Fewer people are.
Darden Restaurants Inc.
) has been struggling to turn around its flagship Italian
restaurant chain while sales are also down at its Red Lobster and
LongHorn Steakhouse chains. Earnings are expected to slide 12.1% in
Fiscal 2013 while it attempts to right the ship.
Darden operates 2000 of the most recognizable casual dining
restaurants in the United States, including Olive Garden, Red
Lobster, LongHorn Steakhouse, Bahama Breeze and the Capital Grille.
Olive Garden, its flagship restaurant, hit a rough patch in recent
years as a stale menu and higher prices turned consumers off. The
company has been forthright in acknowledging the problems, though,
and is making changes including remodeling old restaurants and
offering new menu items. Although, the changes won't come soon
enough to save this fiscal year.
Cut Q3 Guidance In February
In February 2013, Darden shocked analysts with a bearish outlook
for its fiscal third quarter. It projected same store sales down
4.6% with all three of its main restaurant brands getting hit hard.
It also offered third quarter EPS guidance between $1.00 and $1.02,
which was much lower than the Zacks Consensus Estimate of $1.13.
In response, all the analysts cut their estimates for the quarter
and the full fiscal year. The Zacks Consensus for Fiscal 2013 has
fallen to $3.15 from $3.37 since the announcement.
Not surprisingly, given the cuts on the estimates from the
analysts, the Zacks Rank also fell to a Zacks Rank #5 (Strong
Fiscal Third Quarter Results In Line
On Mar 22, Darden released the actual third quarter results. Same
store sales DID decline 4.6%, which was the preliminary forecast in
Some of the individual chains performed a bit better than expected
however. Red Lobster same store sales were down 6.6% but Darden had
pre-announced them as declining 7%. Olive Garden, though, fell
slightly more than expected at a decline of 4.1% compared to the
Darden made on the high end of its quarterly guidance range of
$1.00 to $1.02, as it posted $1.02 in the quarter. Darden
re-confirmed the full year guidance between $3.06 and $3.22.
The company said it was seeing traffic improvement in the fiscal
fourth quarter due to new menu categories at the Olive Garden like
the lighter Italian fare menu. Consumers want to eat healthier and
cheaper. Items under $15 are also selling better at the Red
Darden is also targeting the lunch crowd at both Olive Garden and
Red Lobster, thinking that it was an untapped market. It is rolling
out new menu options specifically for this market segment.
No Turnaround Yet
Darden is a turnaround story but the earnings just aren't there
yet. Check out this price and consensus chart which shows the
dramatic decline in the earnings estimates for Fiscal 2013 and
If you're looking for a restaurant stock with doesn't have
turnaround concerns, you may want to consider Red Robin Gourmet
) instead. It's a Zacks Rank #1 (Strong Buy) and expected to grow
earnings by 6% in 2013.
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DARDEN RESTRNT (DRI): Free Stock Analysis
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