After a downward trend from March to July, Darden Restaurants (DRI, Financial) has rebounded, reaching a new 52-week high. Known for its restaurant chains like Olive Garden, LongHorn Steakhouse, Ruth's Chris, and Chuy's, Darden was highlighted as a YIELD Leader in August. We anticipate insights from its Q2 results on December 19.
Darden has been active in mergers and acquisitions recently. In June 2023, it acquired Ruth's Chris, an upscale steakhouse chain. This acquisition strengthens Darden's portfolio by adding both mid-tier and upper-tier steakhouse options. The larger scale aids in negotiating beef prices amid tight cattle supply.
In October 2024, Darden completed its acquisition of Chuy's, a Tex-Mex full-service dining chain. This marks Darden's entry into the growing Mexican dining segment, with Chuy's being the largest full-service operator in this category, known for strong unit economics.
Darden's recent earnings have faced challenges, with a notable drop in traffic in July, leading to lower-than-expected Q1 EPS and affecting stock performance. However, sales trends improved in August and early September, resulting in positive comps for Q2. Updates are expected in the upcoming Q2 call.
Q1 comps were down by 1.1% (Olive Garden -2.9%, LongHorn Steakhouse +3.7%, Fine Dining -6.0%), softer than Q4's flat comps. Positive remarks from the last call suggest potential improvement in Q2 comps.
Darden announced a deal with Uber for delivery services, allowing customers to order via Darden channels with Uber Direct handling delivery. A pilot is underway, with national expansion at Olive Garden expected by May 2025. Darden plans to potentially expand this service to other brands.
Recently, shares of restaurant operators have surged, with many hitting 52-week highs, including Darden, Brinker (EAT, Financial), Cheesecake Factory (CAKE, Financial), BJ's Restaurants (BJRI, Financial), and Texas Roadhouse (TXRH, Financial). However, Bloomin' Brands (BLMN, Financial), operating Outback Steakhouse and others, is near new lows. Darden, highlighted in our August YIELD report, has benefited from insider buying and has performed well since.
