Skip to Content
Stock Analyst Update

Why Darden Is Gold Standard for Casual Dining Chains

There's more to Darden's outperformance than favorable industry trends.


There wasn't much more that  Darden (DRI) investors could ask for in its start to fiscal 2019, with first-quarter comps of 3.3% outperforming the casual-dining industry (headlined by 5.3% comps at Olive Garden) and 20 basis points of EBITDA margin expansion to 18.2% despite wage rate inflation and a 50-basis-point hit due to mark-to-market manager equity awards. While casual dining has had a relatively strong summer, we believe it would be a mistake for investors to chalk up Darden's outperformance to industry trends. Instead, we continue to attribute its strength to menu mix innovations (new appetizers and small plates), daypart expansion opportunities (new lunch entrees and promotional strategies designed to extend peak-hour capacity), accessible menu pricing generally running behind the category's 2%-3% pricing increases), and ongoing awareness of off-premises sales (which grew to 13% at Olive Garden and represented 13% of the revenue mix).

With the strong start to the year, we find Darden's updated full-year 2019 outlook as realistic if not slightly conservative. This includes new revenue growth targets of 5.0%-5.5%, blended comps of 2.0%-2.5%, 45-50 new restaurant openings (3% unit growth), and diluted EPS of $5.52-$5.65. Although guidance implies decelerating comps as the year progresses and a longer integration process for Cheddar's than some investors had anticipated, we still perceive Darden as one of the most reliable names in casual dining. While we expect rivals to replicate its current strategies--the basis of our no-moat rating--we remain comfortable with our five-year projections, including 6% top-line growth (2%-3% comps, 3%-4% unit growth) and operating margins growing to the low 11s (versus 9.4% in fiscal 2018). We see shares as fairly valued--we're planning a modest increase to our $105 fair value estimate for the first-quarter strength--but see operational momentum and its capital returns keeping the stock in favor over the foreseeable future.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

R.J. Hottovy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.