Darden Restaurants Has More Room To Run After Hitting New All-Time Highs

| About: Darden Restaurants, (DRI)
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Darden Restaurants, Inc. (NYSE:DRI), the parent company of Red Lobster and Olive Garden, saw its shares hit an all-time high on Friday on the strength of its first quarter. The restaurant group beat analysts' earnings per share estimates, while also meeting sales targets.

First quarter earnings per share were $0.85 for Darden Restaurants. Analysts on Yahoo Finance were calling for $0.84 for the quarter. Total sales grew to $2.03 billion, a 5% increase from last year's $1.93 billion. This number met analysts' expectations. The company saw stronger sales due to a higher number of locations and the closing of the acquisition of 11 Eddie V's locations.

Sales targets were met through same-store sales growth at the company's Specialty Restaurant Group and Longhorn Steakhouse locations. Here is a look at the same-store sales numbers for all the company's brands:

· Olive Garden: +0.3%

· Red Lobster: -2.6%

· Longhorn Steakhouse: +3.6%

· The Capital Grille: +4%

· Bahama Breeze: +1.2%

· Seasons 52: +1.3%

Here is a look at total sales by brand, with year-over-year increases:

· Olive Garden: $922 million, +4.3%

· Red Lobster: $660 million, -2.1%

· Longhorn Steakhouse: $285 million, +12.7%

· Specialty Group: $163 million, +26.4%

As you can see, Olive Garden and Red Lobster made up 78% of the company's first-quarter sales. The Specialty sector made up only 8% of first-quarter sales. This is the area where Darden will see the most growth over the next several years. While Darden adds a couple of locations to its dominant Red Lobster and Olive Garden, it will add 100s of new fine dining locations. Darden's recent acquisitions of Eddie V's and Yard House, which I wrote about in my last article on Darden, have worried analysts and scared investors away.

The 39 Yard House locations were purchased for $585 million. By my estimates, the Yard House brand will see fiscal sales of $378 million, which would help the Specialty Restaurant Group cross $1 billion for the first time. The sales from Yard House are not being factored into fiscal 2013 numbers, as the acquisition closes. Analysts are forecasting sales for 2013 to hit $8.74 billion. The following year that number jumps 8% to $9.49 billion.

I mentioned in the last Darden article that their five-year goal was to hit $1 billion in sales for their Specialty Restaurant Group. Now in a year's time, that number should be realized. Another five-year goal was to hit 2,425 total restaurants across all brands. Plans call for the opening of 100-110 (not including Yard House) for fiscal 2013. Here is a look at store counts at the end of the first quarter:

· Red Lobster: 705 (678 USA, 27 Canada)

· Olive Garden: 797 (791 USA, 6 Canada)

· Longhorn Steakhouse: 391

· The Capital Grille: 46

· Bahama Breeze: 30

· Seasons 52: 23

· Eddie V's: 11

· Other: 3

· Total Restaurants: 2006

The new total of 2006 is an increase of 103 from the prior year's period.

Shares hit as high as $57.93 on Friday, before closing at $57.21. Shares trade at fifteen times this year's expected earnings per share of $3.84. However, when looking ahead to 2014, shares trade at only thirteen times the following year's expected earnings. I think those numbers lean on the conservative side as I see the company opening close to 120 locations and possibly 10 additional Yard House locations, as it works on expanding its Specialty Restaurant Group. I think the company will release higher 2014 guidance by the third quarter this year. I wouldn't be surprised to hear the number $4.50 floated around. I think shares could trade at fifteen times forward earnings, reaching a target price of $67.50. Factor in a 3.6% growing dividend with that 18% gain, and shareholders could be pleasantly rewarded in the next year or two.

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.