Darden Stays Underperform - Analyst Blog
April 03 2013 - 8:30AM
Zacks
We maintain our Underperform recommendation on Darden
Restaurants Inc. (DRI) based on lower third-quarter fiscal
2013 earnings, sluggish same-store sales performance in recent
times and a trimmed guidance.
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
Steakhouse.
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
include Red Robin Gourmet Burgers Inc. (RRGB),
Burger King Worldwide Inc. (BKW) and
Cracker Barrel Old Country Store Inc. (CBRL).
While Red Robin and Cracker Barrel retain a Zacks Rank #1 (Strong
Buy), Burger King carries a Zacks Rank #2 (Buy).
BURGER KING WWD (BKW): Free Stock Analysis Report
CRACKER BARREL (CBRL): Free Stock Analysis Report
DARDEN RESTRNT (DRI): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
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