Investors took an upbeat look at restaurateur Darden (NYSE:DRI) today after the company reported an upturn in same-store sales in June. It's not surprising perhaps that investors might wonder whether now's the time to buy.
Darden broke out its same-store sales on a per-restaurant basis. Red Lobster, the Darden chain getting most of the recent attention because of its flagging same-store sales, booked a 9% increase in that category; analysts had expected a mere 1.5% to 5% increase. Olive Garden, which has been one of its strongest restaurant concepts, booked a same-store sales increase of 10% to 11%, as opposed to the expectation for a 5% to 9% increase.
There were several factors that helped the sales come in above target. One was a shift of the Fourth of July weekend -- you're likely aware that restaurants are not high on the list of things for hungry consumers to do, since that's a holiday full of fireworks and backyard barbecues and picnics.
The Red Lobster chain did enjoy a 4% to 5% increase in customer traffic but also raked in more cash through menu changes and price increases.
As always with same-store sales, taking a look at the performance last year is key, and at the same time in 2004, Red Lobster's same-store sales were down by 2% to 3%.
Foolish contributor Nathan Slaughter recently reported on Darden's recent successful turnaround, as it reversed some of the ugliness that Red Lobster wrought upon the company last year (Olive Garden has been the jewel in the crown for quite some time).
On the other hand, despite all the encouraging signs, Darden's efforts to pull Red Lobster out of the morass have not been a consistent success -- back in February the chain showed some problems that were reminiscent of past difficulties.
At any rate, investors reacted to the news by bidding up shares of Darden today by about 4% in recent trading. Although its P/E ratio of 22 compares rather favorably to, say, Cheesecake Factory's (NASDAQ:CAKE) P/E of 40 or P.F. Chang's (NASDAQ:PFCB) P/E of 44, there's another argument: These have been stronger and more consistent performers than Darden, which is still enjoying some easy comparisons and may very well continue to struggle with rejuvenating its Red Lobster chain.
For more:
- Darden's earnings looked savory last month.
- How about some cheesecake?
- Ruby Tuesday (NYSE:RI) was chipped recently.
Alyce Lomax does not own shares of any of the companies mentioned.
