We maintain our Underperform recommendation on
Darden Restaurants Inc.
) based on lower third-quarter fiscal 2013 earnings, sluggish
same-store sales performance in recent times and a trimmed
BURGER KING WWD (BKW): Free Stock Analysis
CRACKER BARREL (CBRL): Free Stock Analysis
DARDEN RESTRNT (DRI): Free Stock Analysis
RED ROBIN GOURM (RRGB): Free Stock Analysis
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Why the Reiteration?
Darden's third quarter 2013 EPS of $1.02 declined 18% from the
prior-year quarter. Despite a unique proposition, driven by a
diversified business model and cost synergies, Darden has been
facing challenges recently. Darden reported weak third-quarter
2013 results, hurt by underperformance of same-store sales at its
three restaurant brands - Olive Garden, Red Lobster and LongHorn
Continued underperformance at one of its core brands, Red
Lobster, remains a threat to Darden. Olive Garden has also been
exhibiting a volatile growth trend over the last one-year period.
In third-quarter 2013, comps at Olive Garden fell 4.1%. LongHorn
Steakhouse, which was a better-placed brand till recently, began
to deliver negative comps from the second quarter of fiscal 2013
reflecting wavering consumer confidence in the U.S.
In fact, with higher payroll taxes, delayed tax refund and
increased gasoline prices, the sales environment is expected to
remain choppy going forward as consumer spending is low.
Given such a scenario, Darden slashed its fiscal 2013 outlook
prior to its third quarter earnings to reflect the poor
performances of the past few quarters as well as the dilutive
impact of the Yard House restaurant chain acquisition in 2012.
This was the third time that Darden cut its guidance in the last
nine months. Earnings guidance for fiscal 2013 was narrowed
sharply from the range of $3.29-$3.49 per share to $3.06 and
$3.22 per share.
Other Stocks to Consider
Some other restaurant industry stocks with a favorable Zacks Rank
Red Robin Gourmet Burgers Inc.
Burger King Worldwide Inc.
Cracker Barrel Old Country Store Inc.
). While Red Robin and Cracker Barrel retain a Zacks Rank #1
(Strong Buy), Burger King carries a Zacks Rank #2 (Buy).