Darden Restaurants (DRI) owns some of the strongest brands in its industry — Olive Garden for pasta, Red Lobster for seafood and LongHorn...
Darden Restaurants (DRI) owns some of the strongest brands in its industry — Olive Garden for pasta, Red Lobster for seafood and LongHorn for steaks.
Sales trends, though, are weakening across its menu of offerings. Executives blame “a more challenging-than-anticipated economic and consumer environment.”
Ingredient costs are rising just as diners are spending less. Several chains have filed for bankruptcy, and the parent company of Bennigan’s plans to liquidate.
Cowen and Co. analyst Paul Westra, though, says these factors will likely take a back seat to oil prices in affecting Darden.
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Restaurant stocks have a 71 percent inverse correlation with year-over-year changes in oil prices, he says. A 100 percent correlation means two objects move in lock-step; a 100 percent inverse correlation means they are mirror opposites.
Oil is more important than restaurant traffic, which has a 36 percent correlation with stock prices.
Because of this, Westra thinks restaurant stocks won’t move much until the middle of next year.
Morgan Keegan analyst Robert Derrington, though, says Darden will enjoy easier year-over-year sales comparisons beginning in its fiscal second quarter, which should lift its shares.
He rates it “outperform.”