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Darden Serves Up a Hot Plate

Gleaning important insight from Darden Restaurants' (NYSE: DRI  ) previous earnings conference call, particularly its efforts to keep menus fresh at Red Lobster and Olive Garden, as well as remodeling at Red Lobster, I concluded that the restaurateur was "well-prepared to deliver solid results." With the release of fiscal 2008 first-quarter figures, we are again reminded about the importance of tuning in to those calls.

For the quarter, same-store sales growth at Red Lobster and Oliver Garden was strong, increasing 7% and 4.8%, respectively. Red Lobster kicked off its fresh-fish ad program in July, and that and a fresh-catch menu printed twice daily is contributing to "measurable improvement in brand perception," according to management in the latest call. Further, there are positive guest satisfaction scores in response to a new Bar Harbor-inspired remodeling effort. Darden's leadership team believes the prototype, named after a popular destination in Maine (a charming seaside village that I have visited) will be a "growth vehicle for the foreseeable future."

It's impossible to say enough about Olive Garden's longtime success. With the 4.8% comps growth at the start of fiscal 2008, the brand has now achieved a remarkable 52 consecutive quarters of same-store sales growth. As for hit-and-miss concepts like Bob Evans Farms (Nasdaq: BOBE  ) and Landry's Restaurants (NYSE: LNY  ) -- if they aren't taking notes already, they ought to be. Olive Garden's strategy of continually updating its menu paid off in the first quarter. Moreover, guest satisfaction was at a new record for the brand during the period. These positive trends are expected to carry forward, enabling Darden to "deliver strong performance throughout the fiscal year."

The biggest news was the announcement of its acquisition of RARE Hospitality (Nasdaq: RARE  ) . While more color on this important development will come in the second-quarter call, we did learn in the latest call that management has already identified areas where it can "realize synergies" between RARE and Darden. My colleague Ryan Fuhrmann and I agree that reducing redundancies in the supply chain and distribution system could lead to significant savings for the parent company.

The RARE acquisition will pit the company more squarely against other competitors in the steakhouse side of casual dining, like Texas Roadhouse (Nasdaq: TXRH  ) and others. But competition is the nature of the biz, and any such hurdles should be more than offset by the potential benefits. Darden doesn't by any means have a perfect track record with developing concepts -- Bahama Breeze and Smoky Bones have been duds. Its longtime success with Olive Garden, however, should prove instrumental as it looks to find growth opportunities from RARE's Capital Grille and Longhorn Steakhouse.

Overall, Darden just served up a nice, hot plate of tasty results. Positive trends and a shiny new acquisition should lead to continued success.

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10/21/2016 4:04 PM
DRI $63.07 Up +0.19 +0.30%
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LNY.DL2 $0.00 Down +0.00 +0.00%
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