Investopedia: Darden Hits A Dry Patch

As the economy continues to wobble along in the U.S., economically sensitive businesses like restaurants continue to face some significant challenges. Newer concepts like BJ's Restaurants (Nasdaq:BJRI) and Buffalo Wild Wings (Nasdaq:BWLD) continue to bring in the patrons, but many established chains are having to work harder and harder for even minor improvements in comp-store growth.

That puts Darden Restaurants (NYSE:DRI) in a tough spot. Darden is definitely a well-run veteran restaurant operator, but the company's core restaurants like Olive Garden and Red Lobster are hardly novel to the restaurant going public. With same-store sales coming in a little weak for the fiscal fourth quarter and the stock sporting a fairly robust multiple, it seems like this is a stock that is going to be stuck for at least a little while longer.

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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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Investopedia: Sysco Humming Along

Food distributor Sysco (NYSE:SYY) is never flashy, but the company has an enviable track record of market share growth and consistent free cash flow growth. That makes it a staple name on lists of quality dividend growth stocks and conservative growth ideas. What's more, it is not a bad way to play what could prove to be many years of inflation pressure. (To help you build a dividend portfolio, read Build A Dividend Portfolio That Grows With You.)


Solid Third Quarter Performance
Sysco reported sales growth of just over 9% for its fiscal third quarter, quite a bit better than the consensus expectation of just under 6%. Growth was clearly fueled by food inflation of more than 5%; case volume growth was about 2% and real sales growth was just under 3%. That is relatively consistent with the customer traffic patterns being reported by major U.S. restaurant chains like McDonald's (NYSE:MCD) and Brinker (NYSE:EAT), so there is not much reason to think that Sysco is losing share.

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Sysco Not Sizzling, Yet

A long history of quality operations can buy a company the benefit of the doubt, even when current earnings and growth are not all that exciting. Such was the case with food distribution giant Sysco (NYSE:SYY) for its fiscal fourth quarter. Results were not especially strong, but this is not a story about individual quarterly performance, and investors seem to be more interested in the long-term cash flow story. 

The Quarter That Was
Reported revenue was up 13.9% in the fiscal fourth quarter, but that is something of a mirage. A significant chunk of that "growth" came from a calendar effect tied to an extra week in the quarter. Stripping that out, growth falls to 5.8%. But wait - there is more. Favorable foreign currency moves added another 1.3% to the growth rate, and food cost inflation was about 2.2%. Consequently, volume growth, arguably the best indication of "real" growth, was on the order of 2.3% for the fourth quarter. 


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