DRI Darden Restaurants Inc

LongHorn Steakhouse, operated by Florida-based Darden Restaurants Inc. (DRI), recently opened its first restaurant in Bluffton, South Carolina. The new 5,600-square feet restaurant accommodates 200 guests and Chad Mitchell, the industry veteran, is the managing partner.

In the same month, LongHorn opened a new 5,000-square feet restaurant in Kingsland, Georgia. The restaurant will be managed by another industry expert Jay Brannon and accommodates more than 200 guests. Last month, LongHorn also opened a 5,000-square feet restaurant in Rochester, New York.

LongHorn Steakhouse is a full-service restaurant chain offering fresh steaks, salmon, shrimp, chicken, ribs, pork chops and burgers. Darden acquired the restaurant chain in October 2007 as part of the RARE Hospitality International acquisition.

The first LongHorn Steakhouse debuted in Atlanta 29 years ago and has been growing steadily since then. During the recently concluded third quarter, LongHorn Steakhouse opened 21 new restaurants. Management expects to open 20–25 LongHorn Streakhouse units by the end of this year. Including other brands, Darden expects to open 70–75 new restaurants for fiscal 2011. For 2012, Darden plans to roll out 30–35 LongHorn restaurants. Currently, the brand operates 350 restaurants in 33 states.

Compared to other core brands of Darden including Olive Garden and Red Lobster, Longhorn Streakhouse is better positioned to sustain its growth momentum. LongHorn Steakhouse’s third quarter U.S. same-restaurant sales increased 6.1%, up 1.5 percentage points from the company’s guidance. Improved promotions and increased media were responsible for the growth. Over the last two years, total sales at LongHorn increased more than 17%, while the industry benchmark was down approximately 2%. In our opinion, Darden management remains keen on boosting its better performing brands and expanding aggressively.

Apart from new openings, the brand also remodeled 75 existing restaurants during the first nine months of fiscal 2011 and expects to remodel 37 restaurants during the fourth quarter.

We believe that with the opening of new restaurants in fiscal 2011, the leading full service restaurant chain is trying to gain market share, following an upswing in the restaurant industry, which remained extremely challenged due to the economic turmoil that resulted in weak labor and tight credit markets and reduced discretionary spending.

However, increased competition from other casual dining operators and surging food costs still remain concerns. Darden, which competes with Brinker International Inc. (EAT), currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We also reiterate our long-term Neutral recommendation on the stock.

 
DARDEN RESTRNT (DRI): Free Stock Analysis Report
 
BRINKER INTL (EAT): Free Stock Analysis Report
 
Zacks Investment Research