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Darden Restaurants: Set To Outperform

Summary

Darden raised estimates for same restaurant sales and EPS for 2016.

Darden improved the guest experience via proper staffing and operational improvements.

Darden is achieving increases in same restaurant sales and the company continues to open new restaurants.

Video source: youtube.com

"Eat steak, eat steak eat a big ol' steer.
Eat steak, eat steak do we have one dear?
Eat beef, eat beef it's a mighty good food.
It's a grade A meal when I'm in the mood." - lyrics from Reverend Horton Heat's song "Eat Steak"

Ahh Yes, there is nothing like the smell and taste of a good steak. I was always a meat and potatoes kind of guy. My family usually dines at LongHorn Steakhouse, one of Darden Restaurants' (NYSE:DRI) chains when we get the craving for a good steak. There is always at least a half an hour wait when we dine at LongHorn on a Saturday night. We also enjoy Olive Garden when we get the craving for Italian food.

Darden has a near-term catalyst for the stock as the company raised its estimates for earnings and same-restaurant sales [SRS] for 2016. Previous estimates for EPS were increased from $3.25 - $3.35 to $3.48 - $3.52. Estimates for SRS increased from 3% to 3.5%. This is likely to give the stock a near-term boost until Darden's fiscal Q4 earnings are reported on June 30.

Darden's long-term catalysts are likely to be continued increases in SRS, earnings growth, and restaurant growth. The company spends about $60k per year per restaurant to optimally maintain and improve them. Darden's improvements to properly staff its restaurants and operational improvements such as smoother execution and menu innovation will help boost SRS. Darden plans on growing its restaurant count by 2% to 3% annually. All of this is likely to add up to overall increases in revenue and earnings over the long-term.

Here is how Darden's brands performed in Q3:

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Brand

SRS Growth

Olive Garden

4.9%

LongHorn Steakhouse

2.7%

Yard House

3.1%

The Capital Grille

4.3%

Bahama Breeze


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