This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Laudani: Digesting Darden

On Friday, Darden Restaurants (DRI - Get Report) is expected to report first-quarter fiscal 2013 earnings. With the stock up some 20% year-to-date, will it keep serving up profits or is it time to get up from the table?

In late June, Darden surprised investors with a weak fourth quarter and disappointing guidance. Same-store sales fell 2%, which was below already lowered expectations. Lower costs helped the company to post a better-than-expected operating margin of 11%. Without the last minute margin boost, the company would have missed the quarter by much more than a penny. Management guided down fiscal 2013 and told investors to expect a companywide same-store comparison of just 1% to 2%.

The weak results at Olive Garden are dragging down the overall companywide comp. Olive Garden has lost market share as other restaurants have beefed up their menus and boosted ad budgets. Carrabba's, Ruby Tuesday (RT), DineEquity's (DINE) Applebee's and even Brinker's (EAT) Chilis have all reinvigorated offerings. Olive Garden has had a poor record for the last three years. Same-store sales have bounced around all over the place. Last quarter, for example, Olive Garden posted a same-store sales decline of 1.9% -- which was better than last year's dismal 2.9% decline -- but that isn't enough to call a turnaround. This quarter's results are expected to be down between 2% and 3%. Red Lobster faces a tough comparison to last year as well.

Looking at the stock, investors don't seem too concerned about Olive Garden. They have taken comfort in the generous 4% dividend and the large share buybacks ($250 million). It doesn't hurt that Darden is one of the few investable casual dining companies, either.

But the good times are coming to an end. Darden recently announced the acquisition of a small restaurant chain called "Yard House" in an all-cash deal valued at $525 million. Because of the deal, the stock buyback will have to be scaled down to just $50 million. Management also told investors the deal would be dilutive by $0.03 to $0.05 per share. Eventually, Yard House will be accretive to earnings, but that is going have to wait a few quarters. Investors like the deal because Yard House earns a higher percentage of its profits from alcohol sales, rather than from food.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV


DOW 17,678.23 -40.31 -0.23%
S&P 500 2,056.15 -4.90 -0.24%
NASDAQ 4,863.3620 -13.1570 -0.27%

Our Tweets

Partners Compare Online Brokers

Top Rated Stocks Top Rated Funds Top Rated ETFs