Darden's Numbers Taste Good

Casual-dining chain Darden Restaurants (NYSE: DRI  ) reported strong fourth-quarter earnings recently. Let's dig into the earnings and see whether they're truly as appetizing as they look.

The numbers
Darden's bottom line surged 19%, to $137.4 million. That number matched Street expectations, and the company forecast fiscal 2012 EPS growth of 12% to 15%.

Revenue for the company rose 6.8% to about $2 billion. All business segments recorded higher sales, with the Specialty Restaurant Group, which includes higher-priced chains, posting the highest year-over-year growth of 19.3%.

Darden's aggressive new expansion strategy seems to be paying off, with newly opened restaurants driving a significant portion of this quarter's revenue. The company owned and operated a total of 1,894 restaurants this quarter, compared to 1,824 at the end of last year's fourth quarter. All business segments also booked rising same-store sales during the quarter.

The company repurchased 2.3 million shares during the quarter, and declared a 34% higher dividend. The forward dividend yield stands at 3.3%.

Expansion mode
Darden, whose brands include Red Lobster and Olive Garden, is revamping some restaurants, with ambitions to add around 80 to 90 new locations this fiscal year. These plans seem to match those of othe best chains in the broader industry.

Chipotle (NYSE: CMG  ) , for instance, aims to open 135-145 new restaurants during the year. Other big names in the industry, such as McDonald's (NYSE: MCD  ) and Yum! Brands (NYSE: YUM  ) , have still bigger plans for expansion, especially in emerging markets such as China.

Darden lacks a global presence; it currently operates only in the U.S. and Canada. But a Bloomberg report says the company is open to acquisitions in the near future, so it's possible that Darden might pursue international growth that way.

Cost efficiency
Efficient cost management sets this Orlando-based company apart. Keeping a lid on its restaurant expenses this quarter helped Darden offset a part of the higher food and beverage expenses. The company has also locked in substantial purchases to control costs for the next fiscal year, avoiding the rising food prices that have plagued many other restaurant chains. Darden's penny-pinching ways should further help to improve its margins.

The Foolish bottom line
Strong numbers and an optimistic outlook make Darden a definite stock to look out for. Even if you don't place an immediate order for this stock, you might want to reserve a place for it on your menu.

Neha Chamaria does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Chipotle and Yum! Brands. Motley Fool newsletter services have recommended buying shares of Chipotle and McDonald's, and creating a iron condor position in Chipotle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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