Please ensure Javascript is enabled for purposes of website accessibility

When You're Here, You're Dysfunctional Family

By Rick Munarriz – Updated Apr 5, 2017 at 8:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Restaurateur Darden has a food fight on its hands.

"When you're here, you're family" is the marketing slogan at Olive Garden. It's a pity that parent company Darden Restaurants (NYSE:DRI) is feeling more like a broken home these days.

Shares of Darden fell by as much as 15% this morning, after the world's largest casual dining restaurant operator talked down its latest quarter and reduced its fiscal 2009 guidance.

Darden isn't messing around. Its first quarter ended on Sunday, and it's already on the horn with bad news.

Darden sees continuing earnings for the quarter, before small accounting dings related to its integration of RARE Hospitality, at $0.60 to $0.62 a share when it officially reports next month. Hungrier analysts were set on $0.75 a share. 

It stays ugly through the rest of the year. After posting an adjusted profit of $2.74 a share for fiscal 2008, Darden is looking for earnings to be flat to 5% higher in this fiscal year. That is problematic, especially because Darden's new fiscal year has an extra week in it. 

Same-store sales fell by 1.1% throughout its eateries during the quarter. A 2.4% gain at Olive Garden was weighed down by sharp weakness at Red Lobster and the recently acquired LongHorn Steakhouse. The company's portfolio of more than 1,700 units includes concepts like the tropical Bahama Breeze, the swanky Capital Grille, and the health-conscious Seasons 52, but those chains are too small to move the needle here.

With Darden being a bellwether for casual dining, the market isn't just killing the messenger. Shares of Brinker International (NYSE:EAT), Cheesecake Factory (NASDAQ:CAKE), CBRL Group (NASDAQ:CBRL), and Applebee's parent DineEquity (NYSE:DIN) all opened lower this morning. Those who figured that the demise of Bennigan's would result in more traffic trickling in to rival full-service eateries will have to rethink the thesis.

There will come a time when the shakeout is complete -- and consumer spending bounces back -- but it apparently isn't right now.

With LongHorn Steakhouse taking the biggest hit in same-store sales -- off by nearly 5% during the quarter -- rival Texas Roadhouse (NASDAQ:TXRH) also dropped on the news.  

It's undeniable that when Darden hurts, the rest of the industry stings. I guess Olive Garden is right. When you're here, you really are family -- a family in mourning.

Related Foolishness:

Longtime Fool contributor Rick Munarriz is always on the lookout for a good Italian eatery and, thankfully, has plenty in Miami. He does own shares in Cheesecake Factory and CBRL Group. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy, and it likes its cuts well-done.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Darden Restaurants, Inc. Stock Quote
Darden Restaurants, Inc.
DRI
$122.39 (-2.44%) $-3.06
Brinker International, Inc. Stock Quote
Brinker International, Inc.
EAT
$25.53 (-5.02%) $-1.35
Cracker Barrel Old Country Store, Inc. Stock Quote
Cracker Barrel Old Country Store, Inc.
CBRL
$98.22 (-4.88%) $-5.04
The Cheesecake Factory Incorporated Stock Quote
The Cheesecake Factory Incorporated
CAKE
$28.43 (-2.44%) $0.71
Texas Roadhouse, Inc. Stock Quote
Texas Roadhouse, Inc.
TXRH
$84.38 (-2.36%) $-2.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.