Tickers in this Article: DRI, EAT, TXRH, CBRL, CMG
Darden Restaurants (NYSE:DRI) reported solid third-quarter results on March 24 and earnings that beat analyst projections. However, investors chose to focus on near-term food inflation. This could dent profits in the short run but will likely do little to derail the company's impressive and consistent ability to leverage high single-digit sales growth into double-digit profit growth, which it has done for at least a decade now. (For background reading, see Sinking Your Teeth Into Restaurant Stocks.)

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Third Quarter Recap
Sales increased a steady 5.5% to just under $2 billion as Darden opened a net 66 new restaurants and experienced modest 0.9% same store sales growth across its restaurant concepts. By concept, comparable sales were flat at Olive Garden, they grew 0.1% at Red Lobster, and jumped 6.1% at LongHorn Steakhouse. Darden's specialty restaurant segment operates brands including Capital Grille, Bahama Breeze and Seasons 52; it reported robust positive comps.

Olive Garden sales grew 4.3% to make up 45.8% of sales, Red Lobster grew 1.2% to weigh in at 33.6% of the total top line and LongHorn grew 12.6% to account for 13.6% of sales. The specialty group saw sales jump 25% to account for the rest of sales at 7%. Darden ended the quarter with 1,868 restaurants in the U.S. and Canada.

Operating income jumped 13.5% to $199.1 million as management held expenses in check and was therefore able leverage the respectable sales growth into an even stronger profit improvement. Higher income tax expense tempered the bottom-line increase by a percent as net income rose 12.5% to $151.2 million, or $1.08 per diluted share. This came in ahead of analyst expectations.

For the full year, management expects total sales growth of 5.5%, and comps across all concepts should rise between 1.5% and 2%. It plans to open 70 to 75 new restaurants and projects earnings growth of 19%, which is up from a previous range of between 17% and 18%. Analysts currently project earnings of $3.38 per share.

The Bottom Line
Management thought that Darden performed well during the quarter despite the effects of the inclement weather that hit many parts of the country. It's also likely that LongHorn grew market share at the expense of privately held Logan's Roadhouse, which was divested by Cracker Barrel (Nasdaq:CBRL). LongHorn is also holding up well against fast-growing rivals such as Texas Roadhouse (Nasdaq:TXRH). (Learn more about corporate actions; read Mergers and Acquisitions: Break Ups.)

Along with Brinker International (NYSE:EAT), which operates the Chili's and Maggianos chains, Darden also continues to successfully maintain and grow an umbrella of brands. It isn't growing as rapidly as Texas Roadhouse or casual dining chain Chipotle Mexican Grill (NYSE:CMG), but can be counted on for consistent results. Short-term worries over food inflation have knocked the P/E ratio to about 13.6, which represents a potentially compelling entry point. The stock also sports a decent dividend yield of 2.7%.

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