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Thank Goodness for Olive Garden

By Rick Munarriz – Updated Apr 5, 2017 at 8:50PM

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Casual Italian saves the day at Darden.

Fans of authentic Italian trattorias may thumb their carpaccio-sniffing noses at the thought of patronizing their local Olive Garden, but Darden Restaurants (NYSE: DRI) knows how to please the masses, if not the foodies.

Rising comps for Darden are as relentless as Olive Garden's endless breadsticks and salad. With a healthy 5.7% gain at the individual unit level for the most recent quarter, comps have now risen at Olive Garden for an amazing 54 consecutive quarters.

Even fallen former world-beaters such as Cheesecake Factory (Nasdaq: CAKE) couldn't keep their comps streaks running that long. Rare are the casual-dining and quick-service chains -- IHOP (NYSE: IHP), BJ's (Nasdaq: BJRI), and Chipotle (NYSE: CMG) among them -- that can consistently milk more out of every quarter-over-quarter comparison.

Unfortunately for Darden, though, the praise for Darden's latest quarter begins and ends with Olive Garden. Comps at the company's other concepts -- Red Lobster, LongHorn Steakhouse, Capital Grille, and Bahama Breeze -- all fell during the quarter.

Darden's revenue climbed 25% higher to $1.8 billion, but that increase was merely the result of last year's acquisition of RARE Hospitality, which brought LongHorn and the upscale Capital Grille into the Darden family.

Earnings of $0.80 a share from continuing operations, meanwhile, were essentially flat with last year's showing, even though earnings would have come in at $0.85 a share on an adjusted basis.

The company is expecting only marginal bottom-line growth in 2008, even though the top line should clock in roughly 20% higher on the steakhouse acquisition, new openings, and expectations for positive comps beyond its Olive Garden workhorse.

I'm not impressed with Darden's organic growth prospects, but I have to tip my hat to Olive Garden. Casual-dining Italian chains usually have a rough go publicly. Bertucci's cashed out. Buca (Nasdaq: BUCA) is now a penny stock. Even Brinker (NYSE: EAT) is looking to unload its Macaroni Grill concept.

As long as Olive Garden can keep the unlimited comp hikes coming to the table, Darden has a chance.

Related Foolishness:

Chipotle was recommended last year in both Rule Breakers and Motley Fool Hidden Gems (the B shares in the latter). It has beaten the market handily in both cases. Which of the two stock-research services is the right one for you? Check either one out with a free 30-day trial subscription offer. Free newsletters? Unlimited breadsticks? What is this world coming to?

Longtime Fool contributor Rick Munarriz is always on the lookout for a good Italian eatery, and he has plenty to pick from in Miami. He does not own shares in any of the companies mentioned in this story, save for Cheesecake Factory. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy likes its cuts well done.

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Stocks Mentioned

Darden Restaurants, Inc. Stock Quote
Darden Restaurants, Inc.
DRI
$122.39 (-2.44%) $-3.06
Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,557.52 (-1.95%) $-30.96
Brinker International, Inc. Stock Quote
Brinker International, Inc.
EAT
$25.53 (-5.02%) $-1.35
The Cheesecake Factory Incorporated Stock Quote
The Cheesecake Factory Incorporated
CAKE
$28.43 (-2.44%) $0.71
BJ's Restaurants, Inc. Stock Quote
BJ's Restaurants, Inc.
BJRI
$23.89 (-4.02%) $-1.00

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

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