Investopedia: Should Darden Stand Pat Or Spread Out?

The largest casual dining operator in the world, Darden Restaurants (NYSE:DRI), warned that it's fiscal first quarter was going to disappoint, and disappoint it did. There are bigger questions about this company than just why traffic at Olive Garden was weak this quarter. Should the company get more aggressive and add concepts in what is a weak restaurant market, or focus on maximizing what it has? Perhaps even more pertinent to investors, are Wall Street's sell-side analysts expecting too much in their models and dooming the stock to underperformance?


A Sluggish Start to the Year
The consumer spending environment is still very price-conscious and that is hurting casual restaurant chains like Darden. With companies like Five Guys, Chipotle (NYSE:CMG), and McDonald's (NYSE:MCD) offering improved products and other quick-service rivals like Yum! Brands (NYSE:YUM) offering low prices, it is harder to draw traffic to stores with average checks in the high teens.

While Darden reported revenue growth of over 7% this quarter, core comp sales were up less than 3% while speciality comps were up a bit more than 5%. Growth was weakest at the flagship Olive Garden, where comps fell almost 3% (on lower traffic) and overall sales rose less than 1%. While Red Lobster and and LongHorn were stronger on a reported basis (each up 12%, with comps up 10.7% and 4.8% respectively), both benefited from heavy promotional activity that gives a misleading picture of real traffic.


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http://stocks.investopedia.com/stock-analysis/2011/Should-Darden-Stand-Pat-Or-Spread-Out-DRI-MCD-YUM-DIN-EAT-CAKE-RUTH0928.aspx