Top Overall Favorite Restaurants: Olive Garden (8%), Outback Steakhouse (8%) and Red Lobster (7%).
The current results look relatively strong for Darden Restaurants Inc. (DRI), owner of Red Lobster and Olive Garden. They also echo the results from our April survey, which showed a positive outlook for Darden once consumer restaurant spending starts to improve. According to our April 2008 survey, Red Lobster, Olive Garden and Outback Steakhouse will benefit most when consumers begin spending again.
But remember, the bottom line is that consumers are still reining in their spending on restaurants – much to the dismay of the restaurant industry – and until we see that behavior beginning to change, restaurant stocks will remain a risky bet.
With its economies of scale and promotional capabilities, Darden will be able to attract more foot traffic to its restaurants through specials which will take advantage of the recent decline in commodity prices. Darden has proved its ability to retain customers with its 2Q09 sales figures. While the average casual-dining restaurant's same store sales fell by 5.3%, sales for restaurants in Darden's portfolio fell only .2%. In an environment where consumers are trading down to cheaper alternatives for food and dining, Darden offers great value and should perform well as a low to middle market service company.