Who's Serving Up the Best Operating Performance -- Darden, Brinker, or Bravo Brio?

Despite the steadily improving economy, consumers are proving to be finicky eaters. They're rewarding some restaurant chains with greater customer traffic while patronizing others less frequently than before -- as shown by the varying results for Darden Restaurants, Brinker International, and Bravo Brio Restaurant.

Mar 12, 2014 at 1:48PM

According to the National Restaurant Association's February tracking survey, restaurant operators are divided on what the near future holds for their industry. Economic conditions will improve, says 29% of respondents. But a nearly equal number, 26%, expect conditions to deteriorate. The rest, a 51% majority, say things will be generally unchanged.

With those clashing opinions, we might expect that some restaurant chains are performing significantly better than others. That's why we'll look at Darden Restaurants (NYSE:DRI), Brinker International (NYSE:EAT), and Bravo Brio Restaurant(NASDAQ:BBRG)

Bottle Of Wine

(Photo courtesy of stock.XCHNG)

Not an (olive) garden of delights
Darden Restaurants, which refers to itself as "the world's largest full-service restaurant company," has more than 2,100 locations and generates annual sales in excess of $8.5 billion. Its familiar brands include Olive Garden, Red Lobster, and LongHorn Steakhouse, but it also has a smaller specialty-restaurant group with brands it hopes to grow in the future.

The company is in a state of transition as it tries to cope with lackluster results at a time when other restaurant companies are reporting impressive sales and profit gains. One of its initiatives is to pursue the sale of or spin off its Red Lobster group.

On March 3, the company released a sampling of results for its third quarter ended Feb. 23 in advance of the earnings release scheduled for March 21. This financial appetizer wasn't that tasty. Darden says it expects year-over-year U.S. same-restaurant sales to decline 5.4% at Olive Garden and 8.8% at Red Lobster, with LongHorn Steakhouse achieving a tiny 0.3% gain.

The company reported a brutal December, with same-restaurant sales down more than 10% at both Olive Garden and Red Lobster. The punishing weather was part of the problem, the company said, along with Thanksgiving being in a different fiscal quarter in 2013 in comparison to 2012. Despite removing the combined 410 basis point effect of those factors, same-restaurant sales would still have been down more than 6% in December.

The outlook for 2014 is turbulent as well, with Darden forecasting a decline in diluted net earnings per share of between 15% and 20% compared to 2013.

Things are brighter at Brinker
As of year-end 2013, Brinker International owned, operated, or franchised 1,557 Chili's Grill & Bar restaurants, as well as 45 Maggiano's Little Italy restaurants.

For its fiscal second quarter ended Dec. 25, the company announced that sales rose 2.3%. Chili's domestic comparable-restaurant sales rose 0.3%; Maggiano's reported a more robust 0.9% increase, the 16th consecutive quarterly increase.

For Chili's company-owned locations, customer traffic declined nearly 2% from the year-ago quarter -- which had declined nearly 2% from the same quarter of 2011. Within the casual-dining segment, it's still an intense battle for each customer. 

If we look at the first two quarters of Brinker's fiscal year, total revenue rose just 1.1%. The company did a good job of controlling company-restaurant expenses, which declined 10 basis points as a percentage of sales.

It's easy to summarize Brinker's performance for the half-year: revenue increased $15 million, total operating costs rose only $10 million; so an additional $5 million fell to operating income. Net income was up 6% compared to the first half of 2012.

Restaurant chains are increasingly looking to international markets to fuel growth, exporting their well-known brands abroad where the competition in the casual-dining segment may not be as rugged. Chili's projected restaurant openings for 2014 include 34-39 Chili's international locations and only 10-13 Chili's domestic locations.

In search of greater brio
Bravo Brio Restaurant operates two Italian restaurant brands, BRAVO! Cucina Italiana and BRIO Tuscan Grille. The BRAVO! restaurants feature a Roman ruin decor with an open-style kitchen so guests can observe the chefs preparing the meals. BRIO serves up the delicious flavors of Italy's Tuscany region.

In late February the company announced full-year 2013 results, and performance definitely lacked a certain amount of brio. Revenue increased just 0.5% from 2012 to $411 million. Comparable-restaurant sales fell 2% at BRAVO! and even more at BRIO: 3.4%.

As a percentage of revenue, the cost of sales was down 40 basis points, but labor costs rose 60 basis points; as did restaurant operating costs.

The overall higher operating costs contributed to the $14.7 million negative variance in operating income from a year ago. A non-cash asset impairment charge caused $10.1 million of the variance; but even with that removed, operating income fell compared to 2012.

For 2014, management expects comparable-restaurant sales to be between negative 2% and positive 1%. Just so-so, in other words.

Bravo Brio hopes to stop the negative comparable-restaurant sales trend through expanding its lighter-fare menu as well as introducing a new happy hour program and weekend brunch.

The company intends to be conservative in new store openings until the sales trend reverses course.     

What we learned
To bring former customers back and entice new ones, Darden has implemented a "Brand Renaissance" plan. This includes an enhanced menu for Olive Garden announced Feb. 24 with what it says are "exciting new offerings." These changes include lower-calorie dishes, meals with more modest portions, and the option to mix and match pastas and sauces.

The question is: Are these changes enough to change customer perception of the chain?

Darden's brand renaissance clearly has a long way to go. In the news there have been squabbles reported; significant shareholders are displeased with the company's strategic direction and analysts write negative opinions about the company.

But with Darden's size, scope, customer base, and brand strength, all that's required is to secure a strategy that resonates with today's consumers.

This is a restaurant environment where it's better to be serving upscale customers the way that Ruth's Hospitality Group (think sizzling platters of prime beef) does or to have a fresh, fun, fast-casual concept such as Fiesta Restaurant Group, two companies I recently wrote about.

My favorite of the three companies we focused on today is Brinker International.

Start investing ASAP
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.


Brian Hill has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers