Darden Restaurants, Inc. (DRI) recently reported better-than-expected first quarter 2010 results. Despite a low-single digit fall in the top-line, the company posted a double-digit growth in the bottom-line. Darden’s quarterly earnings of 67 cents a share surpassed the Zacks Consensus Estimate of 65 cents, and climbed 15.5% from 58 cents reported in the prior-year quarter. Lower food and beverage costs (down 8.5% year-on-year) and fall in restaurant expenses (down 7.2%), partially offset by rise in labor costs (up 1.7%) and higher depreciation and amortization expenses (up 6.0%) drove the earnings. Management expects earnings per share (EPS) for the fiscal year 2010 in the range of $2.59 to $2.85. However, Darden added that given the macro-economic conditions, its earnings could be at the lower end of its forecast. Revenue for the quarter slipped 2.3% to $1,734 million, as blended comparable restaurant sales fell 5.3%. However, ...

For Immediate Release

Chicago, IL – August 3, 2009 – Zacks.com announces the latest Industry Outlook. Today’s outlook from Zacks Equity Research analyst Ann Northrop discusses the Restaurants sector. Highlighted stocks include: Darden Restaurants (DRI), Brinker International (EAT), Ruby Tuesday (RT) and California Pizza Kitchen (CPKI).

Here is the latest on the Restaurants sector:

Driving the restaurant stock rally, was a slew of better-than-expected earnings reports – and upward earnings estimate revisions -- including those by Darden Restaurants (DRI), Brinker International (EAT), Ruby Tuesday (RT) and California Pizza Kitchen (CPKI). With the exception of Darden, however, the out-performance was driven by strong cost controls, decelerating commodity prices and conservative assumptions.

Darden was the only operator that saw customer traffic improve and had limited same-store sales declines to the low single-digits (down 3.2% in

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Bites of Opportunity Remain in Overcooked Sector

OVERVIEW

Restaurant stocks have room on the downside

Restaurant stock prices have doubled since their November lows, retested in March. The Zacks Restaurant Index has surged 211% from its 52-week lows, far outpacing both the Russell 2000 (up 63%) and the S&P 500 index (up 48%). The major indexes remain roughly 25% off their 52-week highs.

Valuation multiples have expanded from trough levels and the group now trades at roughly 15 times 2010 earnings. While there are pockets of opportunity in the sector, we think the recovery will be slower than anticipated by the market, weighed down by a consumer sobered by shriveling home values and retirement portfolios and record levels of debt.

Casual dining cooks up positive earnings surprises, but offers no sustenance

Driving the restaurant stock rally, was a slew of better-than-expected earnings reports Ð and upward earnings estimate revisions -- including those by Darden Restaurants (

...

Bites of Opportunity Remain in Overcooked Sector

OVERVIEW

Restaurant stocks have room on the downside

Restaurant stock prices have doubled since their November lows, retested in March. The Zacks Restaurant Index has surged 211% from its 52-week lows, far outpacing both the Russell 2000 (up 63%) and the S&P 500 index (up 48%). The major indexes remain roughly 25% off their 52-week highs.

Valuation multiples have expanded from trough levels and the group now trades at roughly 15 times 2010 earnings. While there are pockets of opportunity in the sector, we think the recovery will be slower than anticipated by the market, weighed down by a consumer sobered by shriveling home values and retirement portfolios and record levels of debt.

Casual dining cooks up positive earnings surprises, but offers no sustenance

Driving the restaurant stock rally, was a slew of better-than-expected earnings reports Ð and upward earnings estimate revisions -- including those by Darden Restaurants (

...

Bites of Opportunity Remain in Overcooked Sector OVERVIEW Restaurant stocks have room on the downside Restaurant stock prices have doubled since their November lows, which were retested in March. The Zacks Restaurant Index has surged 211% from its 52-week lows, far outpacing both the Russell 2000 (up 63%) and the S&P 500 index (up 48%). The major indexes remain roughly 25% off their 52-week highs. Valuation multiples have expanded from trough levels and the group now trades at roughly 15 times 2010 earnings. While there are pockets of opportunity in the sector, we think the recovery will be slower than anticipated by the market, weighed down by a consumer sobered by shriveling home values and retirement portfolios and record levels of debt. Casual dining cooks up positive earnings surprises, but offers no sustenance Driving the restaurant stock rally, was a slew of better-than-expected ...

Steepest Decline in Traffic Since 1981   The U.S. Restaurant Industry is facing its toughest times in 3 decades and the outlook appears to be grim unless the economy shows signs of rebound. With lower disposable income, consumers are spending less and dining out seldom. Moreover, rising unemployment is making things worse. Most of the companies have either scaled back or postponed further unit development. Famous Dave’s of America (DAVE), Cosi Inc. (COSI), BJ’s Restaurants (BJRI), California Pizza Kitchen (CPKI) and Red Robin Gourmet Burgers (RRGB), which operate in the casual dining segment, are experiencing declining same-store sales and traffic counts. A recent report by market research firm, NPD Group asserted that U.S. restaurant guest traffic plunged 2.6% for the quarter ended May 31, the steepest fall in 28 years compared to an increase of 0.5% during the prior year quarter. More than 50% of the ...

On Wednesday, July 8, California Pizza Kitchen (CPKI) raised its second-quarter earnings guidance, helped by cost-control initiatives that offset declining revenue. Shares of the company climbed 4.49% and closed at $13.73 after the announcement.

California Pizza Kitchen now expects second-quarter earnings in the range of $0.24 to $0.25 per share, up from its previous forecast of $0.18 to $0.20 per share. The company’s strong average weekly sales across newly opened restaurants prompted management to boost its earnings forecast. The company’s Thank You Card Program was also successful in driving sales.

Separately, California Pizza Kitchen reported preliminary results for the second quarter of 2009. Revenue for the quarter fell 3.2% to $170.9 million from $176.6 million in the prior-year quarter. Comparable-restaurant sales at its full-service restaurants open at least 18 months fell 6.5% for the second quarter, compared with an increase of 1.5% reported in the year-ago period. The

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On June 23, 2009, Darden Restaurants, Inc. (DRI) increased its quarterly dividend by 25% to $0.25 per share, resulting in an annual dividend of $1.00 per share. Previously, the company had paid a quarterly dividend of $0.20 per share. The increased dividend would be paid on August 3, 2009 to shareholders as of July 10, 2009.In another move to increase shareholders' return, the company repurchased 0.4 million shares in 4Q09, the most recently reported quarter. In fiscal 2009, Darden spent $145 million to buyback 5.1 million shares. Since the commencement of the share repurchase program in December 1995, the company has repurchased over 152 million shares for an aggregate amount of $2.92 billion under its authorization of 162.4 million shares.The increase in dividend and share repurchase highlights Darden's resilience in a turbulent economy. The company is faring better than its casual dining ...

Darden Shares Hold Value in Overcooked Restaurant SectorThe latest financial results from Darden Restaurants (DRI), reported yesterday, bolster our belief that restaurant sector's recovery will be slower than investors expect.The best-of-breed casual dining operator once again reported same-restaurant sales out-performed the industry, but they deteriorated markedly in May at two of the company's three concepts, dropping 5% at both Olive Garden and Red Lobster, after rising 0% to 2% in March and April. Customer traffic plunged 8-10% at the two concepts. We suspect new promotions and discounting by competitors lured away Darden's core value-conscious clientele.For FY 4Q09 ended May 31, comps at both Olive Garden and Red Lobster dipped just 0.6%, but those of LongHorn Steakhouse fell 6.5%. Combined the restaurants same-store sales slid just 1.4%, far better than the 6.7% average ...

Companies mentioned in this report: Red Robin Gourmet Burger (RRGB), Brinker International (EAT), California Pizza Kitchen Inc. (CPKI), Denny's (DENN) and O'Charley's (CHUX).Red Robin Customer Traffic Falls SharplyRed Robin Gourmet Burger's (RRGB) customers moved to cheaper alternatives at an accelerating pace in 1Q09 -- a trend that we expected. We are maintaining our Sell recommendation.The family-friendly casual dining chain reported a 42% drop in EPS to $0.25 in 1Q09. Excluding $0.5 million to close unprofitable restaurants and $4 million to repurchase under-water stock options from its employees, EPS was unchanged from a year ago at $0.43.To stop customers from trading down to cheaper fast food alternatives, many casual dining chains are luring cash-strapped customers with promotions, a tactic Red Robin has avoided in favor of increased advertising. Three concepts of Brinker International (EAT) -- Chili's, ...