Bear of the Day: Darden (DRI) - Bear of the Day
March 26 2013 - 2:00AM
Zacks
Have you eaten at an Olive Garden lately? Fewer people are.
Darden Restaurants Inc. (DRI) 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 Sell).
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 February.
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 4.0% forecast.
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 Lobster.
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 Fiscal 2014.
If you're looking for a restaurant stock with
doesn't have turnaround concerns, you may want to consider Red
Robin Gourmet Burger (RRGB) instead. It's a Zacks Rank #1 (Strong
Buy) and expected to grow earnings by 6% in 2013.
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Tracey Ryniec is the Value Stock Strategist for Zacks.com.
She is also the Editor of the Turnaround Trader and Value Investor
services. You can follow her on twitter at @TraceyRyniec.
DARDEN RESTRNT (DRI): Free Stock Analysis Report
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