They say, in life, timing is everything.
For an eatery chain like Darden Restaurants (NYSE: DRI), the timing of certain holidays can make a difference, which you can see in its March sales release last week.
This year in particular: Easter fell a week earlier than last year, which meant Lent started a week earlier. And that meant Red Lobster started its Lobsterfest promotion a bit sooner to coincide with Lent. If you're a restaurant chain like Red Lobster, you want to be fishing when the fish are biting.
The company reported March same-restaurant sales for Red Lobster down 3% due to the timing shift in crustacean consumption. Customer counts were down 5% for the month. Darden's Olive Garden chain fared better during March. Same-restaurant sales advanced 3% to 4%, with customer counts up 1%. It's clear that both casual dining chains are making good use of menu mix and pricing to drive average checks higher.
I continue to be impressed with management at Darden. Through March, the Olive Garden notched 50 consecutive quarters of positive U.S. same-restaurant sales growth. That's 12.5 years, my friends -- a level of consistency that's hard to find in the fickle and competitive casual dining world. Red Lobster also appears on solid footing, with positive 4.6% same-restaurant sales during the third quarter. The chain has grown this key restaurant metric nine of the past 10 quarters. I'm not concerned about the March sales hiccup, as it was up against 13% comps in the prior year. The repositioning of Red Lobster that began in 2004 looks to be on track.
But followers of the company know that for Darden to sustain meaningful sales growth, and its 18 P/E multiple, it requires another growth vehicle. Olive Garden and Red Lobster combined have added 31 restaurants this past year, or 2.5% new restaurant growth. The younger concepts -- Bahama Breeze, Smokey Bones, and Seasons 52 -- don't appear to be happening as of yet, adding only seven sites over the last 12 months.
In light of this, the company is putting its cash flow to good work, aggressively buying back shares (4.3 million during the third quarter). This is the same strategy being employed by other solid but potentially tapped out casual dining companies like Brinker (NYSE: EAT) and CBRL Group (Nasdaq: CBRL). I agree with the concept. If you can't find promising internal investment opportunities, give the cash back to the shareholders. But without that new growth vehicle in plain sight, it's easy to see why Darden's share price appears as though it's starting to flatline.
More sustenance for the seafood lover in you:
Fool contributor Timothy M. Otte surveys the restaurant scene from Dallas. He welcomes comments on his articles, but doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.
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