Investors have been eating up shares of Darden (NYSE:DRI) today, fattening up the stock at one point to a new 52-week high. The restaurateur, well known for the troubles facing its Red Lobster chain over the last several months, said it expects to post better-than-expected third-quarter earnings when it reports next month.
Management says it's now looking for a profit of $0.45 to $0.46 per share, well above the old consensus of $0.36 per share. It plans to report earnings on March 17.
However, while the news is apparently enough to make some investors bet on a turnaround, to my way of thinking there are still some questions as to whether Darden's concepts are really stacking up against the competition for the long term.
According to the press announcement today, while same-store sales at Olive Garden were up 4% to 5% in February, this was helped by a 3% to 4% increase in check averages after a menu price hike of 2% to 3%, while guest counts were anywhere from flat to up 1%.
Meanwhile, Red Lobster might have been looking up after several months of decreasing same-store sales, but its flat to 1% gain in sales included a 3% to 4% increase in check average along with a 1% boost in menu prices. Guest counts were still down by 3%. While that's a far cry from the double-digit decreases in sales that were reported last year, it still shows a way to go in luring people back into the restaurant.
Recently, lots of restaurants seem to be benefiting from consumers shaking off some of the stinginess and negativity of the last few years to make dining out a more popular pastime again. For example, just a few days ago, Applebee's (NASDAQ:APPB) reported higher same-store sales in February with a 1.5% uptick in menu prices and a 7.5% to 8% increase in guests.
For now, investors are celebrating the Darden's good news, and they've been starving for it after the last several months of positive-news famine. Whether this is truly the turnaround they've been waiting for -- or worth the 14% jump in the stock price earlier today -- isn't clear to me. It still may be a little premature to party over Darden just yet.
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Alyce Lomax does not own shares of any of the companies mentioned.
