This article is part of our Rising Star Portfolio series.
In retrospect, perhaps I should have waited about a week to purchase shares of Darden Restaurants
Blame Darden's Olive Garden concept; value promotions like never-ending pasta bowls (including never-ending salad and breadsticks) didn't do the trick in luring never-ending strings of customers to the chain.
Meanwhile, in the face of rising food costs, Darden decided not to mess with momentum at Red Lobster and LongHorn Steakhouse by passing too many of those costs on to customers. Therefore, there was little to offset the weakness at Olive Garden.
Now Darden expects 2012 per-share earnings to increase 4% to 7%, a far cry from the previous guidance for 12% to 15% earnings growth. It reduced its sale- growth expectation by 0.5% to a range of 6% to 7%.
Granted, these aren't great tidings; reduced profitability next year also means the price I paid for Darden wasn't as inexpensive as I thought.
However, there's no use crying over spilled milk (or uneaten breadsticks). The lowered price represents a cheaper opportunity than I got when I added Darden shares to the portfolio last week.
Although one could certainly argue that restaurant stocks like McDonald's
Meanwhile, I far prefer Darden to beleaguered restaurant stocks like Wendy's
Darden has some work to do in adjusting its Olive Garden menu to fire up its customers more, and at prices they're willing to pay for the value they get in their meals. Meanwhile, CEO Clarence Otis told CNBC he believes food costs will stabilize, and if that's the case, then we're simply dealing with temporary headwinds right now.
I have my eye on the situation at Darden, but I see no reason to cut and run. Although management obviously has some work to do in getting Olive Garden's menu adjusted and sales back up to par, I see no reason for investors to bail out of Darden. Don't sweat the short term, Fools.
If Darden or any of these restaurant stocks are becoming more appetizing, add them to your Watchlist to track all the latest developments: