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Darden (DRI) Strong on Cheddar's Buyout & Other Initiatives
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On Jun 5, we issued an updated research report on the casual dining restaurant chain, Darden Restaurants, Inc. (DRI - Free Report) .
Shares of the company have widely outpaced the Zacks categorized Retail-Restaurants industry in the past one year. While the industry added 13.8%, Darden’s shares recorded a gain of 35.5%.
Although current quarter and current year earnings estimates have remained stable, estimates for next quarter and next year have moved slightly up over the last month. This reflects optimism in the stock’s prospects, going forward. Moreover, Darden’s earnings surpassed the Zacks Consensus Estimate consistently over the last ten consecutive quarters with an average beat of 3.35% in the trailing four quarters.
Cheddar’s Acquisition
In Apr 2017, Darden completed the acquisition of small restaurant chain, Cheddar's Scratch Kitchen (Cheddar's), in an all-cash deal worth $780 million. Excluding certain expenses, it anticipates the transaction to be accretive to its adjusted per share in fiscal 2018 by roughly 12 cents per share.
Notably, Cheddar's seems to be a great fit in the company’s portfolio as it not only complements its existing brands, but is also expected to aid in attracting customers given its extensive appeal. This in turn should drive Darden’s comps and resultantly, sales.
Other Prospects
In order to boost the performance of the Olive Garden brand, the company implemented a set of initiatives under its Brand Renaissance Plan. These included simplifying kitchen systems, improving sales planning and scheduling, operational excellence to improve guest experience, developing new core menu items, allowing customization and making smarter promotional investments.
Also, the brand is focusing on remodeling. The revamped restaurants are already generating high same-restaurant sales and returns.
Meanwhile, Darden’s focus on technology-driven initiatives, like the system wide rollout of tablets and mobile ordering also bode well. Olive Garden’s To Go business that offers online ordering at selected locations is also growing rapidly. Additionally, the company has launched catering in the U.S, which is expected to add to its top line.
At LongHorn, the company strives to attract its guests by focusing on core menu, culinary innovation and providing regional flavors. It is also working on its marketing strategy to improve execution; customer relationship management and digital advertising as well as a strong promotional pipeline that leverage the segment’s expertise.
Furthermore, the company is focusing on an aggressive cost management plan, under which it has been able to significantly cut operating costs. This would help the company boost profits and gain financial flexibility amid a soft consumer spending environment.
Headwinds
Over the last few quarters, the U.S. restaurant space has not been too enticing. Same-store sales growth has also been dull in a difficult sales environment. Traffic too has been weak. As a result, the company’s sales have come under pressure. In fact, the first quarter of 2017 marked the fifth consecutive quarter of negative comp sales for the restaurant industry as a whole, continuing the somber mood.
It should be noted that while several other restaurateurs including Yum! Brands, Inc. (YUM - Free Report) , McDonald’s Corporation (MCD - Free Report) and Domino’s Pizza, Inc. (DPZ - Free Report) have opened their outlets in the emerging markets, Darden seems to be slow on this front.
Moreover, the collapse of the Republican-led bill, which was intended to replace Obamacare, means that the Affordable Care Act is here to stay. This means that restaurant operators will have to continue shouldering increased labor costs, which in turn will hurt margins. Further, the non-franchised model makes the company susceptible to increased expenses.
Bottom Line
Despite the prevalent headwinds, most of Darden’s brands have been witnessing growth over the past few quarters given various sales initiatives like operational excellence, menu innovation along with technology-driven moves. Moreover, the acquisition of Cheddar's has added an undisputed casual dining value leader to this Zacks Rank #2 (Buy) company’s portfolio of differentiated brands, which should drive comps and resultantly sales, in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Darden (DRI) Strong on Cheddar's Buyout & Other Initiatives
On Jun 5, we issued an updated research report on the casual dining restaurant chain, Darden Restaurants, Inc. (DRI - Free Report) .
Shares of the company have widely outpaced the Zacks categorized Retail-Restaurants industry in the past one year. While the industry added 13.8%, Darden’s shares recorded a gain of 35.5%.
Although current quarter and current year earnings estimates have remained stable, estimates for next quarter and next year have moved slightly up over the last month. This reflects optimism in the stock’s prospects, going forward. Moreover, Darden’s earnings surpassed the Zacks Consensus Estimate consistently over the last ten consecutive quarters with an average beat of 3.35% in the trailing four quarters.
Cheddar’s Acquisition
In Apr 2017, Darden completed the acquisition of small restaurant chain, Cheddar's Scratch Kitchen (Cheddar's), in an all-cash deal worth $780 million. Excluding certain expenses, it anticipates the transaction to be accretive to its adjusted per share in fiscal 2018 by roughly 12 cents per share.
Notably, Cheddar's seems to be a great fit in the company’s portfolio as it not only complements its existing brands, but is also expected to aid in attracting customers given its extensive appeal. This in turn should drive Darden’s comps and resultantly, sales.
Other Prospects
In order to boost the performance of the Olive Garden brand, the company implemented a set of initiatives under its Brand Renaissance Plan. These included simplifying kitchen systems, improving sales planning and scheduling, operational excellence to improve guest experience, developing new core menu items, allowing customization and making smarter promotional investments.
Also, the brand is focusing on remodeling. The revamped restaurants are already generating high same-restaurant sales and returns.
Meanwhile, Darden’s focus on technology-driven initiatives, like the system wide rollout of tablets and mobile ordering also bode well. Olive Garden’s To Go business that offers online ordering at selected locations is also growing rapidly. Additionally, the company has launched catering in the U.S, which is expected to add to its top line.
At LongHorn, the company strives to attract its guests by focusing on core menu, culinary innovation and providing regional flavors. It is also working on its marketing strategy to improve execution; customer relationship management and digital advertising as well as a strong promotional pipeline that leverage the segment’s expertise.
Furthermore, the company is focusing on an aggressive cost management plan, under which it has been able to significantly cut operating costs. This would help the company boost profits and gain financial flexibility amid a soft consumer spending environment.
Headwinds
Over the last few quarters, the U.S. restaurant space has not been too enticing. Same-store sales growth has also been dull in a difficult sales environment. Traffic too has been weak. As a result, the company’s sales have come under pressure. In fact, the first quarter of 2017 marked the fifth consecutive quarter of negative comp sales for the restaurant industry as a whole, continuing the somber mood.
It should be noted that while several other restaurateurs including Yum! Brands, Inc. (YUM - Free Report) , McDonald’s Corporation (MCD - Free Report) and Domino’s Pizza, Inc. (DPZ - Free Report) have opened their outlets in the emerging markets, Darden seems to be slow on this front.
Moreover, the collapse of the Republican-led bill, which was intended to replace Obamacare, means that the Affordable Care Act is here to stay. This means that restaurant operators will have to continue shouldering increased labor costs, which in turn will hurt margins. Further, the non-franchised model makes the company susceptible to increased expenses.
Bottom Line
Despite the prevalent headwinds, most of Darden’s brands have been witnessing growth over the past few quarters given various sales initiatives like operational excellence, menu innovation along with technology-driven moves. Moreover, the acquisition of Cheddar's has added an undisputed casual dining value leader to this Zacks Rank #2 (Buy) company’s portfolio of differentiated brands, which should drive comps and resultantly sales, in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting >>