Darden Restaurants Inc. Defies a Weak Restaurant Sector

By Motley Fool Staff Markets Fool.com

In this segment from Market Foolery, the teamserves up the latest news fromDardenRestaurants(NYSE: DRI), including a better-than-expected quarter when the restaurant industry in general has taken a beating. The company also announced the $780 million acquisition of regional chain Cheddar's Scratch Kitchen.

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A full transcript follows the video.

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This video was recorded on March 28, 2017.

Mac Greer: It was a good day for Darden Restaurants.Shares up big on Tuesday on better than expected earnings and news that Darden's would buyCheddar's Scratch Kitchen.

Ron Gross:That'sa good name.

Greer:Ron,that's a great name, it's such a great name. We should also mention that Darden's owns Olive Garden and Longhorn Steakhouse, among others.

Gross:Capital Grille, my favorite. That's a good one.

Greer:Capital Grille. What do you think?

Gross:Thecompany is doing good, and a lot of restaurants are not. The results were pretty impressive, just shy of a 1% same store sales across the board. The highlight was Eddie V's, their seafood concept, at a 4.7%same-store sales increase. That's pretty impressive. Olive Garden, where most of their profits come from, and Steve Broido's favorite, of course,for listeners of the radio show, up 1.4%. So, not too shabby either, especially when you look out across the competition and see there's a lot of folks that are struggling right now. Profits were up strong. They increased guidance. Then, as you said, a $780 million acquisition of Cheddar Scratch, 165 locations across 28 states. It's a value chain. Let me hit you with some menu items. PerhapsI could interest you in some baby back ribsor some chicken fingers. Maybe J-Mo would like aMonte Cristo sandwich.

Greer:Chicken-fried steak.

Gross:Nothing wrong with that.

Greer:Chicken-fried steak, Ron.

Gross:Well,there's a lot wrong with that.

Greer:[laughs] Bite your tongue!

Gross:[laughs] But,this is nice. They'readding a casual dining chainto their portfolio. I like that move. It'shard to say whether or not the $780 million is a good price,because I don't have a lot of financials on this company. We know that they've grown revenue 12% to 15% over the last 10 years. Not too shabby. That sounds good to me. Darden does say it will be accretive to their earnings pretty quickly. That's nice to see as well. Darden doing well.

Jason Moser:I continue to be amazed by the performance of Olive Garden's to-go side of the business. It's not a top of mind whenI'm looking for something to go. Butthey have clearly hit on something here.The performance there, it's continued double-digit growth in the to-go segment of the business that's just, I'm astounded.

Gross:I've never used it personally.I wonder if Steve has.

Moser:I don't remember the last time I went to an Olive Garden, but obviously, a lot of people are going. I think a big catalyst forDarden was when they spun offa lot of the real estate that they owned intoFour Corners Property Trust. They hada lot of restaurants in there wherethey owned the real estate. Basically,they were trying to whittle down theircost structure and just be a really good operator of restaurants. So, theyspun off a lot of that propertyto this property trust.I think it helps shore up the balance sheet. I think it helped themfocus on doing one thing and doing really well, and that is bringing a number of good,middle of the road brand names into their universe, andbeing able to grow those footprints. Again,kind of like that Facebook strategy. Whether you're going to one of theserestaurants, you're still going to a Darden restaurant at theend of the day. And that's very good for them.

Greer:AndI want to go back to the name. I think Cheddar's Scratch Kitchen --

Gross:It'spretty good.

Greer:I think that's the greatest name.I think the worst name isCarl's Jr.Westill don't know how Carl came into possession of Jr. Because it's Carl's Jr.

Gross:It's likeRuth's Chris.

Greer:Oh,that's terrible!

Gross:Yeah,it's hard to say.

Greer:That was some mash up of someone who was married, and then they're not, but, Carl's Jr.?

Gross:Cheddar's Scratch does it.

Greer:It's confusing.I don't want to be confused. I just want food.

Gross:I just want baby back ribs. Youjust want chicken-fried steak?

Greer:You don't like chicken-fried steak?

Gross:No,I do, but it's not the healthiestpiece of food.

Greer:Oh,and all the other items were, I'm sorry. Ron Gross,picture of health.

Gross:Smothered in that white gravy, thatunidentifiable white gravy.

Greer:That's why it's good.

Jason Moser has no position in any stocks mentioned. Mac Greer has no position in any stocks mentioned. Ron Gross has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.