This Day On The Street
Continue to site
ADVERTISEMENT
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

Jennifer Aniston's Doing Better Than the Olive Garden

In both cases, it's delusion. It's also a pretty nasty thing to snap out of once that pleasant fog clears and unsettling reality sets in.

Casual dining tried to conceal the damage wrought by the recession, but the cover was blown during the ensuing, incremental recovery. Restaurant group Darden Restaurants International (DRI - Get Report), the parent company of Red Lobster, Olive Garden, Longhorn Steakhouse and other chains, gave the first indications that something was wrong late last year. Warnings about earnings gave way to disastrous reports as its restaurants' two-for-$25 meal deals fell short of the two-for-$20 deals offered by its competitors.

One of those adversaries, Chili's and Maggiano's Little Italy parent company Brinker International (EAT - Get Report), reported this year that the end of those deals, coupled with the end of a Social Security tax cut, would force it to lower expectations for 2013. NPD Group wasn't surprised and noted that the number of restaurant visits driven by deals rose between 3% and 5% at the height of the recession in 2008 and 2009, but slumped 3% last year.

What casual dining establishments are learning quickly is that nobody's going to buy their reheated food or pre-fabricated atmosphere if they don't feel it's a value. The cost of dinners out rose 2.7% over the past year, according to the Consumer Price Index. That's more than the 2.2% overall rate of inflation and isn't helped when a $10 promotional meal jumps to $12 or $14, jacking up the price 20% to 40%.

Casual dining's knee-jerk reaction has been to gut the works. Ruby Tuesday (RT) ripped out the Tiffany-style lamps, ferns and brass, de-emphasized the salad bar and bathed everything in black and red. The company's share price has dropped 18% in the past year, it unloaded three non-Ruby Tuesday chains and reported flat sales. Darden decided to change the menus at Red Lobster and Olive Garden, tear down Olive Garden's Tuscan decor and tear off its trademark white uniforms in favor of black and has even toyed with the idea of removing servers altogether and going with a pay-at-the-counter system. Sales and earnings still haven't recovered.

As Applebee's and IHOP owner DineEquity (DINE) and Outback Steakhouse and Carraba's Italian owner Bloomin' Brands (BLMN - Get Report) face similar struggles, casual dining's problems run much deeper than the local high school lettermen jackets on the walls and the uniforms the staff is wearing. For one thing, Millennials don't see casual dining restaurants, or restaurants in general, as being nearly as important to their social experience as baby boomers did. According to NPD, Millennials cut back on restaurant visits since 2008 while boomers only increased their intake of Bloomin' Onions and unlimited breadsticks.
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

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
Quant Ratings

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
Stocks Under $10

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
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

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

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BLMN $23.29 2.20%
EAT $59.82 1.60%
DRI $74.11 0.42%
AAPL $121.27 -0.90%
FB $94.87 -0.36%

Markets

Chart of I:DJI
DOW 17,713.18 -32.80 -0.18%
S&P 500 2,110.28 +1.65 0.08%
NASDAQ 5,143.1990 +14.4140 0.28%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs