On Thursday December 19, 2013 Darden Restaurants (DRI -0.76%) announced its second quarter earnings for its 2014 fiscal year. After reporting revenue and earnings per share that fell short of analyst expectations, shares of the restaurant conglomerate fell more than 5%. Given this significant share price decline, is it possible that Darden is an attractive investment or does the market have it right and the stock deserves to be down so much?

Darden just can't impress
For the quarter, revenue at Darden, the parent of big-name restaurants like Olive Garden, Red Lobster, and LongHorn Steakhouse, came in at $2.05 billion. Although this represents a 4.6% increase over the $1.96 billion the company reported the same quarter a year earlier, it fell short of the $2.07 billion that Mr. Market was hoping for.

According to the company's earnings release, revenue was negatively affected by a 4.9% decline in sales of its Red Lobster chain. With 705 locations (or 32.4% of its 2,174 locations), Red Lobster is the second largest restaurant business owned by Darden. Comparable restaurant sales declined by 4.5% as consumers are moving away from many casual and fast food restaurants and moving toward fast-casual operations like Chipotle Mexican Grill and Panera Bread Company. Olive Garden didn't perform much better. During the quarter, sales at the chain increased 2.4% but saw a decline of 0.6% on a comparable restaurant basis.

Despite these declines, the company did see some positive developments. Over the same timeframe, sales at the company's LongHorn group jumped an impressive 16.5%. This improvement was due largely to an 11.5% increase in the number of locations from 399 to 445. On top of this, comparable restaurant sales for the chain rose 5%, driven by a combination of higher traffic and pricing.

On an earnings per share basis, the company was hit by rising costs as its cost of sales rose from 80% of revenue last year to 81.5% this year. This growth stemmed from a 5.8% jump in providing food and beverages, a 6.7% rise in labor and a 7.3% rise in miscellaneous restaurant expenses. As a result of these impacts, earnings per share fell by 42.3% from $0.26 to $0.15, significantly falling short of the $0.20 expected by Mr. Market.

But Darden isn't alone!
Unfortunately, Darden isn't alone in experiencing tough times. Yum! Brands (YUM -0.12%), the parent company of Taco Bell, KFC and Pizza Hut, has been sharing in the pain of a move away from traditional establishments and toward healthier alternatives. During the company's most recent quarter, earnings per share fell by 68% compared to the same quarter a year ago. In all fairness, a good portion of this decline was due to a one-time impairment of its Little Sheep acquisition in China, but if you exclude this news, it's still far from good.

Revenue in the company's U.S. operations fell 13.2% compared to last year, primarily due to increased competition from Chipotle and Panera. On top of disappointing results in the U.S., the company has been hit by a 6.5% drop in international sales and by 2.7% in China. In the case of China, the actual decline on a comparable restaurant basis was 16% but this was partially offset by a 12% increase in restaurant count.

Similarly, Ruby Tuesday (RT) has been performing relatively poorly. In its most recent quarterly report, the company reported that its revenue fell 11.6% from $327.9 million last year to $289.7 million. The problem, according to J.J. Buettgen, Ruby Tuesday's CEO, was a challenging economic environment. On an earnings per share basis, the company's situation fared even worse. Despite analyst expectations that earnings would come in at -$0.06 (down from the $0.04 it earned last year), the company reported a net loss of $0.37.

Though the situation at Ruby Tuesday looks equally bad as Yum! Brands and possibly worse than Darden's, the company's shareholders do have one thing that the others don't; book value. Unlike Yum! Brands, which trades at 14.8 times book value and Darden, which trades at 3.2 times, Ruby Tuesday trades at only 0.85 times book value, none of which is in the form of goodwill. What this means is that investors would likely be cushioned against a significant share price decline in the event that business deteriorates further as the company can't be too far from liquidation value.

Foolish takeaway
As we can see, the situation at Darden is bad but not terrible. If you remove Red Lobster from its results (which it announced will be spun off from the company sometime next year), then its performance looks a little bit better. Moving forward, it will be interesting to see what becomes of the company but it's likely that business will improve if it follows through with its divestiture of Red Lobster's assets.