Darden's eateries need a new recipe
The company's Olive Garden, Red Lobster and LongHorn fast-casual chains are clearly struggling. At least a juicy dividend gives the stock some appeal.
Net income in the last quarter fell to $134.4 million, or $1.02 per share, down 18% from $164.1 million, or $1.28, a year earlier. Excluding one-time items, profit was 26 cents a share, matching expectations. Revenue rose 7% to $1.96 billion, slightly better than the $1.95 billion consensus forecast.
Exceeding analysts' expectations, however, is less impressive when not much is expected to start.
All of the company's chains continued to struggle even though Darden has spent big bucks on promotions. Same-store sales, a key metric for the performance of locations open at least a year, plunged 6% at Red Lobster, 4.1% at Olive Garden and 1.6% at LongHorn Steakhouse.
Darden is trying hard to bring customers back. It's testing no-tip counter service at Red Lobster, a strategy that has worked for some rivals. But critics have argued that Darden's efforts may turn off customers looking for good but not necessarily the cheapest food. And last year, Darden angered customers when it threatened to move full-time workers to part-time status to avoid costs associated with Obamacare.
Darden clearly has some serious problems. The company's marketing has emphasized price over quality, and now it plans to offer more lower-price menu options to attract more diners. Unfortunately, that puts Darden's brands in a head-to-head competition with fast-food chains that they can't win.
As a stock, though, Darden may still be the best option for investors in the troubled fast-casual dining sector. Indeed, Mark Kalinowski, a restaurant industry analyst at Janney Capital Markets, is quoted in the Orlando Sentinel as saying the sales declines have "bottomed out" in the most recent quarter.
The stock is certainly attractively priced. With a price-to-earnings multiple of 13.95, Darden is trading near a five-year low and at a discount to its peers. The 52-week price target on the shares is $49.49, near where it trades now. But Darden also features a dividend with a tasty yield of 4%, far better than its rivals such as Brinker International (EAT) and Cheesecake Factory (CAKE).
Steady returns like that can be worth biting into in today’s uncertain markets, but keep an eye on what Darden is cooking up in its kitchen.
Jonathan Berr does not own shares of the listed stock. Follow him on Twitter @jdberr.
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Darden has been in decline for years, not because of lack of promotion, or even the price point of the menu items. IT'S THE MENU ITSELF !! It stinks, the items offered are not worth it nor do they make for a good dinning experience. The money you might save by going 'cheep' will only be spent in other ways like a 12 pack of imodium ! People will gladly pay a little more for quality food that is actually prepared rather than 'assembled' in the kitchen. And having quality employees?
Forget about it ! You WILL NOT HAVE QUALITY with cutting their hours; While servers might be 'a dime a dozen'- SO ARE RESTAURANTS !
This little phase is what 'Olive Pit' servers sing: (to be sung to the tune of the Hospitalliano song)
"FROM THE PASTA WE BURN, TO THE TIPS WE DON'T EARN-OH WE WISH WE NEVER WORKED HERE !
Their hokey theme and overpriced food used to be what people thought of as a nice night out, however most of the people I know now consider their restaurants to be the trashy version of a night out. I have not been to a Red Lobster in 5 - 6 years, and it is not because of the economy. The last time I went was for a business lunch, and the bill for 3 people with no alcoholic drinks was nearly $70. Give me a break! For that kind of money you can have a very nice meal at a much nicer restaurant, and you won't leave feeling sick. The last time that I was at an Olive Garden was probably 3 - 4 years ago, and I opted for the unlimited soup, salad, and breadsticks, which I am sure has continued to go up in price but not quality (if it is even still offered). Everything was fine, but as always with this place, you can not escape without being hounded over and over to purchase a dessert that you don't want. I have had waitstaff go as far as asking if they could just package a dessert up and send it home with me. I highly doubt that I will ever return to either of these restaurants. Along the same lines as Sick of it in NH, if I want to go out and spend the kind of money that these chains are asking, I am going to go to a much classier restaurant that serves a far better quality of food.
I have been to 2 Darden restaurants in the last 11 years (because of 2 separate gift cards). Olive garden was so bad I sent the food back and didn't order anything else, and the server was not surprised. Red Lobster was ok, but it was buffet quality food for Prime steakhouse prices. $80.00 for a family of 4?(2 adults and 2 children).
You get a better meal and better value at the local mom and pop place in any town than in these glorified fast food places.
Then they scoff at having to cover medical care for their employees? Forget about paying the staff a livable wage, forcing them to live for tips. Raising the cost of the meal (15-30%)because WE have to supplement Darden's poor employment practices. Thats reason enough to boycott them.
And even as he was threatening to knock everyone down to part-time Clarence Otis (CEO of Darden) got a 15 percent bump in total compensation last year, with an earnings package worth $7.7 million. Thats a lot of cash for running a company into the ground.
The only restaurant chain worth eating at is the Ninety-Nine. Only for quick, inexpensive yet tasty fair.
If I chose Italian, I to an Italian restaurant!
If I chose steak, I go to a steakhouse!
If I want seafood, I go to a seafood restaurant, and here on the northeast seacoast you'd be a fool to dine at a seafood chain. In fact there was a Red Lobster that opened years ago in Newington, NH (right on NH's seacoast). It did not last long amidst the plethora of Lobster Houses and other fine seafood restaurants.
Gee Darden, that should have been a no brainer!
The formula for a successful restaurant is not that difficult. Good quality food for a good price. That doesn't mean it has to be super cheap, just need to be competitive for the level of quality..
the common thred with these chains.....their food sucks (olive garden salad and breadsticks excluded) Frozen Lassagena you get at Costco is WAY better then what you get at Olive Garden.
mix in the higher cost and small portions. sometimes people settle for a crap meal.......usually there is a Crap meal price to go along with it. i think it became and issue when people started forking out top dollar for this garbage.
The only reason why this corp is failing is notdue to recipes it is do to ripping off the public.
A couple weeks ago a friend and I went to Olive Garden for dinner. He ordered a chick mango dish and I ordered Seafood Alfredo!
His chick was over cooked to the point where we both thought it had been reused and themango was far from ripened!
And although my Alfredo tasted good I was appauled that all the seafood in this dish was 6 tiny salad shrimp and 4 bay scallops---yet this dish cost me almost $18 for a dish that cost them under $1. What a rip off and no we will never go back to Olive Garden!
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