Flavorful meals derived from Olive Garden's Culinary Institute of Tuscany in Italy combined with reasonable menu pricing in the U.S. has helped Darden's (NYSE:DRI) Italian-themed restaurant chain become its most successful brand. Instead of job cuts or reports concerning huge losses and write-downs, Darden's analyst conference last week revealed the appeal Olive Garden still has for value-seeking customers. Let's take a look at what Darden's serving up for the future, and how it plans to continue to satisfy despite the tough economic climate.

Darden Restaurants is the home of Olive Garden, Red Lobster, Season 52 and Bahama Breeze, LongHorn Steakhouse and the Capital. During its analyst conference, Darden announced that a slowdown in customer traffic is expected to lower same store sales anywhere between 1.25% and 2.25% for the end of its 2009 fiscal year in May. The expected slowdown caused Darden to reduce the total number of new restaurant openings originally planned for fiscal 2009, but it's still focusing on building 36-38 new Olive Garden restaurants - and with good reason.

Darden added 39 new Olive Gardens to its portfolio during the 2008 fiscal year. Same store sales growth increased 4.9%, driven by a 3% increase in guest checks and a 1.9% increase in the number of guests dining at Olive Garden. The increases helped Olive Garden generate a record $3.07 billion in revenue, with the average restaurant generating $4.9 million.

"We recognize that consumers are under incredible pressure and are more discerning about how and where they spend their discretionary income," Darden's CEO Clarence Otis said at the end of the company's second quarter, ending November 2008. Consumers are having to make tough choices about whether they can afford to go out to eat at all, and Darden brands also compete with fast food giants like McDonalds (NYSE:MCD) and Yum Brands' (NYSE:YUM) Pizza Hut and Kentucky Fried Chicken chains.

In the sit-down dining space, Darden competes with Brinker International Inc. (NYSE:EAT), which owns the Chili's, Maggianos and Macaroni Grill brands, and DineEquity (NYSE:DIN) which operates Applebee's and the International House of Pancakes. Brinker reported a loss for the second quarter of its fiscal 2009 period due to a 5.4% drop in same store sales from the same period a year ago. The closure of 189 Macaroni Grills was cited as one cause. DineEquity completed the acquisition of the Applebee's restaurant chain at the end of 2007. Although Applebee's added $298 million to the consolidated company's revenues for the third quarter ending September 30, Q3 still reported a $14.8 million loss from continuing operations from interest expense on $2.3 billion of funded debt, impairment charges and a loss on a financial derivative in 2007.

Final Thoughts
Darden is supported by the strength of its Olive Garden brand and customers' desire to get the most value for their dining experience. These are good signs for Darden's revised menu for future growth and its appetite for profits.

Learn to put your money where your mouth is in Sinking Your Teeth Into Restaurant Stocks.

Related Articles
  1. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  2. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  3. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  4. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  5. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  6. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  7. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  8. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  9. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  10. Stock Analysis

    Are the Brands Millennials Love a Good Buy?

    Millennials make up a very big — and thus important —c onsumer generation. So if they love a brand, its stock is likely to outperform, right?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center