Steady Same-Store Sales Will Continue To Be A Key Catalyst For Darden Restaurants

Jun.24.13 | About: Darden Restaurants, (DRI)

On Friday, June 21, Darden Restaurants, Inc. (NYSE:DRI) announced a quarterly dividend increase of $0.05/share to bring its upcoming dividend payout to $0.55/share. It should be noted that this increase represents a 10% increase from its prior dividend of $0.50/share, which was paid on May 1. In the wake of DRI's dividend increase I wanted to not only examine the company's Q4 results, but also highlight some of the key catalysts behind my decision to consider a long-term position in this particular restaurant-based play.

Performance & Trend Status: On Friday shares of DRI, which currently possess a market cap of $6.48 billion, a P/E ratio of 15.28, a forward P/E ratio of 15.75, and a forward yield of 4.29% ($2.20), settled at $50.12. Based on Friday's closing price, shares of DRI are trading 5.42% below their 20-day simple moving average, 3.91% below their 50-day simple moving average, and 0.76% above their 200-day simple moving average. These numbers indicate a short-term, mid-term downtrend for the stock, which generally translates into a near-term selling mode for traders.

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A Soft, Yet Steady Q1 Performance: On Friday, June 21st Darden Restaurants, Inc. reported the results of what I believe to be a very soft first quarter. The company's Q1 EPS of $1.01 /share missed Street estimates by $0.04/share, and its revenue of $2.30 billion beat Street estimates by a margin of just $0.03 billion. Although it missed EPS expectations the company's performance was driven by a 3.50% increase in same-store sales at its Longhorn Steakhouse restaurants, a 3.50% increase in same-store sales at its Red Lobster restaurants, and a 1.10% increase in same-store sales at its Olive Garden restaurants. If the company can continue to demonstrate a solid increase in the same-store sales of its Longhorn Steakhouse, Red Lobster and Olive Garden restaurants over the next 12-24 months, I see no reason why Darden should not be considered from a growth perspective.

24-Month Dividend Behavior: Since April 6, 2011, DRI has increased its quarterly distribution a total of three times (including the company's most recent increase announced on June 21st) by an average of $0.0766/share each time. From an income perspective, the company's forward yield of 4.29% coupled with its continued annual increases could equate into a very viable income option for long-term investors in search of a higher-yielding restaurant-based play.

Conclusion: When it comes to those who may be looking to establish a long-term position in Darden Restaurants, I'd continue to keep a watchful eye on three things. The first thing I'd keep in mind would be the company's efforts to increase same-store sales at its Longhorn Steakhouse, Red Lobster, and Olive Garden locations. Secondly, I'd continue to monitor the company's dividend behavior as I strongly believe shareholders will see continued increases in the company's quarterly distribution at least the next 24-36 months. The last of the three things to consider would be overall outlook in terms of restaurant-based same-store sales trends given the fact the month of May 2013 demonstrated solid results.

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According to Miller Pulse, "May's solid sales performance was largely driven by healthy increases from the fine-dining and fast-food segments, not to mention the fact that Fine-dining restaurants saw sales increase 4.8 percent while fast-food brands reported an increase in same-store sales of 3.2 percent. In addition, fast-casual restaurants and casual-dining restaurants saw sales increases of 2.3 percent and 1.1 percent, respectively". If these numbers can continue to demonstrate steady growth on a month-to-month basis there's no reason why the same-store sales at Darden Restaurant's three key properties can't grow at a similar pace.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DRI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.