What Does It Mean That Darden and Brinker Are Favorable to Knapp Track?

This week we heard from both casual dining giants, Brinker (EAT) and Darden (DRI). That's a significant portion of the US casual dining sector right there. EAT reported a $.10/share earnings upside surprise (despite a loss driven by its Macaroni Grill disposition), but would not guide towards 2009 earnings. Darden, on the other hand, stuck to its long term (it lowered guidance in 2008) earnings guidance of a 10-15% (fully diluted) EPS outyear goals, but 2009 at $2.41 to $2.57/ profit per share goals (fully diluted), a decline of 5-10% from prior year.

Some New news: Darden CFO noted Friday in response to a question that an acquisition "probably" would be required at some point in the outyears to hit its earnings target. It was interesting that both EAT and DRI said their core concepts tracked favorable to the Knapp Track index. Knapp Track is a monthly sales and guest count tracking service, for chain dinner house/theme restaurant operators.

I've met Mr. Knapp, and his is a useful service. But: if both DRI and EAT are favorable to the Knapp Track, how far below it can be the other casual dining operators? Applebees? Ruby Tuesday? TGI Friday's? Real Mex? Logic follows that if DRI and EAT are above, others must be below (or way below) the trend. Not all operators can be above it ! Finally, while more benchmarks are always good, it's important to note that the Knapp Track casual dining index is the average, and does not have valuation, debt service and other financial and business metrics with it. It's just an index, a series of numbers.

Disclosure: no positions