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Casual dining firm Darden Restaurants, Inc. (NYSE:DRI) recently reported decent fiscal year 2013 first quarter results. Revenue grew 4.8% year-over-year to $2.03 billion, roughly in-line with consensus expectations. Earnings, adjusted for the acquisition of the Yard House, grew 10.3% year-over-year to $0.86 per share, slightly better than consensus estimates.

Olive Garden, Darden's largest segment, reported positive same-store sales growth of 0.3% during the quarter. Overall, sales in the segment surged 4.3% to $922 million, as the count included 40 net new restaurants. Though the restaurant is moving toward more value offerings as consumers remain constrained, Olive Garden is having a hard time recovering traffic, which fell 4.4% in June, 3.7% in August, and up just 0.1% in July. We think traffic will return in the fall, but we worry consumers may be opting to trade down to fast food dining options. However, the firm is focusing on containing costs, which has boosted overall profitability.

Red Lobster also experienced weakness, as same-store sales tumbled 2.6% during the quarter, though four new restaurants offset some of the weakness. Total sales fell 2.1% to $660 million. Traffic fell significantly during the summer months, down 8.7% in June and 8.3% during July, though pricing gains were able to offset some of the traffic declines. However, traffic accelerated 4.9% during August, suggesting better pricing may lead to more favorable consumer attitudes. Like Olive Garden, lower costs helped increase profitability.

LongHorn Steakhouse experienced strong results through the entire quarter, with same-store sales up 3.6% during the period. The chain continues to add restaurants, leading to 12.7% sales growth. Unlike Darden's other restaurants, the steakhouse saw strong traffic through the summer months, as it advanced every month. Like Texas Roadhouse (NASDAQ:TXRH), LongHorn benefits from a value offering and an exceedingly popular concept.

In addition to strong results from LongHorn, the Specialty Restaurants Group saw sales increase 26.4% year-over-year, mostly due to the inclusion of Eddie V's. The segment, which includes The Capital Grille, Bahama Breeze, Seasons 52, and soon Yard House serves a more affluent customer and should continue to outperform the rest of the firm. None of the group's concepts are mature at this point, so we think this will drive the lion's share of the firm's growth while it sorts out its issues at its core restaurants.

Going forward, the firm reiterated its fiscal year 2013 top-line guidance of 9%-10% revenue growth and same-store sales growth of 1%-2%. The company also reaffirmed its 5%-9% earnings growth guidance for the year. We're big fans of Darden's ability to generate cash, but we remain on the sidelines, as shares are fairly valued.

For an in-depth look at how we calculate the fair value of Darden and other firms in our coverage universe, please click here. And while the firm pays an elevated dividend (annual yield of 3.5% at current levels) and recently raised it - click here for that news - we aren't crazy about its ability to raise its payout going forward. We're not interested in adding the company to the portfolio of our Dividend Growth Newsletter at this time.

Source: Darden Posts Decent Results Amid Fears Of A Slowdown