BJ's Restaurants and Darden's Quarterly Flops are Today's Soup Du Jour
Sunny skies without a cloud in sight have made for a clear and breezy quarter in the restaurant business. Darden Restaurants (NYSE: DRI) is positioned to have a successful year despite recent trends going slightly awry, while BJ Restaurants (NYSE: BJRI) reported solid Q1 growth and projected SSS growth over the next year.
Although the winter months were not very successful for the operator of Olive Garden and Red Lobster, Darden Restaurants is beginning to pick up strength in numbers as it is expected to return 15-20% to investors annually over the next few years.
According to a research report published today by Goldman Sachs, the current weakness in Darden's shares should be seen as an attractive entry point for investors.
“We expect 2013 to be an above-trend year, with returns potentially above the 20% high end of its typical annual returns profile. This is mostly driven by food cost relief which we believe could reach 25-50bp in 2013. It is worth noting that we get to 20%-plus total returns in 2013 even with a conservative 2.3% SSS estimate (below its fiscal 2012 SSS growth rate),” Goldman Sachs said after reiterating its Buy rating and $57 PT in the report.
Sudden expectations that Darden will progress tremendously after an as-of-late shaky performance does call into question whether or not the improvements are based on managerial changes, or if Mother Nature is the one to thank.
Regardless, the weather is certainly not hurting the business. Wedbush awarded a $57 PT to BJ's Restaurants today as the company is set to outperform its current expectations in the same store sales category. Beyond SSS, recent checks performed by the research firm provided positive feedback from customers, and a promise of refurbished signature dishes.
“We are increasing our Q1 SSS growth expectation to 4.5% from 3.5% based on our most recent survey of ~20% of BJ's units. 62% of responses indicated the given location's expectations were being exceeded, 33% indicated met expectations, with only 5% indicating sales below expectations,” Wedbush said in the report. “We also believe that an incremental 50 bp contribution to SSS growth by the July refresh of BJ's signature pizzas is realistic given similar contributions from recent menu introductions. We note that YoY comparables ease and menu price is expected to increase (per guidance) as the year progresses. We are raising our 2012 SSS expectation to 5% from 4.4% (vs. 4% cons.).”
The California-based company was upgraded today from a Neutral to Outperform rating.
Unfortunately, restaurants lacking Italian or seafood cuisine appear to be experiencing the opposite summer-forecast effect. To name a few, The Cheesecake Factory (NASDAQ: CAKE) and Buffalo Wild Wings (NASDAQ: BWLD) are enduring problems such as turtle-paced growth or increased price points.
As reported earlier today by Star Tribune, research firms were not necessarily impressed by the lack of speed behind either company.
“Stephen Anderson, senior restaurant analyst for Miller Tabak + Co., has a hold rating on Buffalo Wild Wings. While he thinks the casual themed restaurant is gaining ground on weakened rivals through sales-building initiatives and new stores, he sees pressure on margins. He explains in his latest research report: "We are reluctant to chase BWLD even higher as prices on bone-in wings, which have not declined since the Super Bowl, are likely to thwart margin expansion,” Star Tribune said.
J.P. Morgan felt a similar sentiment when discussing its mediocre meeting with Cheesecake Factory CEO David Overton, CFO Doug Benn, and SVP of Finance and Strategy Matthew Clark. Overall, valuation was said to be ok, but no compelling news sprang from the conversation.
Analysts and stockholders will likely continue to cross their fingers for good weather, delicious eats and fast-moving growth to keep the industry on the constant up-and-up.
Darden Restaurants is currently trading at $51.33, up +12.37% YOY. BJ's Restaurants is currently trading at $50.10, up 5.43% YOY. The Cheesecake Factory is currently trading at $30.34, up 5.09% YOY. Buffalo Wild Wings is currently trading at $93.31, up +75.06% YOY.
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