Darden Restaurants (NYSE: DRI ) is sure making investors' stomachs churn lately.
The stock fell more than 2% during intraday trading Monday, extending its 7% slide Friday after the company reported disappointing fiscal first quarter 2014 earnings.
On the surface, that pessimism admittedly seems founded, considering Darden's quarterly net earnings per share fell 37.6% compared to last year, despite a 6.1% year-over-year increase in sales to $2.16 billion.
So what happened?
In short, Darden suffered greatly as same-restaurant sales for its two largest core restaurant concepts, Olive Garden and Red Lobster, declind of 4% and 5.2%, respectively. Apparently, then, customers simply aren't taking to Darden's efforts to "improve affordability and to refine the guest experiences so that they remain responsive to what guests want beyond affordability."
Considering Olive Garden and Red Lobster collectively contributed more than $1.54 billion to Darden's overall revenue, or more than 71% of the total, it's safe to say perceptions of Darden are effectively tied to how the two chains are performing.
For now, anyway.
Remember, Darden also owns LongHorn Steakhouse, which boasted revenue growth of 14.2% to $325 million. What's more, those gains not only came from the addition of 47 new locations over the past year but also from a U.S. same-restaurant sales increase of 3.2%.
In addition, consider Darden's Specialty Restaurant Group, which is comprised of smaller chains including The Capital Grille, Bahama Breeze, Eddie V's, Seasons 52, and the recently acquired Yard House chain. Revenue from specialty restaurants grew an impressive 72.7% to $282 million, primarily driven by new locations and a tiny 0.5% combined growth in comp sales.
Over time, then, long-term investors can look forward to the day Darden's business isn't overly reliant on its current two biggest brands.
That said, it's also worth noting Darden management was quick to point out August's same-store sales at both Olive Garden and LongHorn outpaced the broader industry and Red Lobster's numbers were in line.
That's why I still don't think their quarterly numbers were all that bad, at least compared to their competing casual dining industry counterparts. As fellow Fool Rick Munarriz pointed out, shares of Ruby Tuesday (NYSE: RT ) dropped 17% in July after 3.1% and 5.1% dips in same-store sales at its company-owned and franchised locations, respectively, and Brinker International's (NYSE: EAT ) Chili's posted a 0.6% decline in comps around the same time as well.
Last quarter, by comparison, Darden's U.S. same-restaurant sales increased 3.5% at LongHorn Steakhouse, 3.2% at Red Lobster, and 1.1% at Olive Garden. As a result, something tells me when Ruby Tuesday and Brinker report earnings next month, Darden's results will make it look like a regular overachiever.
Then again, last month investors in Red Robin Gourmet Burgers (NASDAQ: RRGB ) and Buffalo Wild Wings (NASDAQ: BWLD ) must have felt satisfied when their stocks each rose by around 10% after posting same-store sales growth at company-owned locations of 4.3% and 3.8%, respectively.
However, Red Robin only achieved that result by raising prices in the face of declining foot traffic, which is something investors can't reasonably expect to count on forever. Buffalo Wild Wings, on the other hand, did it by both focusing on improving their already-enjoyable atmosphere and cleverly revising menu prices away from the number of wings received as the industry moved toward larger chickens. Instead, B-Wild customers now pay based on more vague (albeit more fair) small, medium, and large portion sizes.
Still, consider their valuations: Shares of Red Robin and Buffalo Wild Wings trade at a premium for 32.6 and 33.9 times last year's earnings, respectively, and neither stock pays a dividend, given their lofty growth aspirations.
Meanwhile, Darden stock currently trades for just 16.3 times trailing earnings and offers a 4.8% dividend yield.
But don't get me wrong. I've made no mystery of the fact that I like the prospects for both Red Robin and Buffalo Wild Wings down the road, but there also comes a point at which Darden's value looks too intriguing.
In the end, that's why I think Darden's recent drop offers a perfect entry point for patient, long-term investors.