Darden Restaurants Weak - Another "Tell" Stock
By:
TraderMark Wednesday, December 19, 2007 11:51 AM
I started writing about the tough times ahead for Restaurants back in September (
Tough Times Ahead: Restaurants?)Middle class consumer squeezed along with skyrocketing inputs for their food doesn't bode well for profit margins in this group as a whole. We have the cheese inflation, the dairy inflation, the corn inflation and now the wheat inflation.While everyone focused on the home builders, and they had just begun to get negative on the retailers, I was mentioning how restaurant stocks outside of magical Chipotle (
Chipotle - the One Impervious Restaurant Stock) were the next shoe to drop. I sounded like a raving doomsday lunatic then, but slowly all these items are coming to fruition, one by one. Unfortunately, I cannot short individual stocks in this simulation and there is no ETF that shorts restaurants so all I can do is talk about it, and not act on it. But we have slowly but surely seen the shoes fall.
- (Oct 11th) Let's Check in on Ruby Tuesday's
- (Oct 31st) Food Inflation Starts to Hit Restaurants
I have a few other entries but to be blunt I don't follow this sector closely because we have a very saturated retail and restaurant situation in this country, so it's not exactly a growth story. But last night we had one of the really big names in the sector, Darden Restaurants, miss estimates by a country mile, and the type of restaurants this company runs (Olive Garden, Red Lobster) smacks right dab in the sweet spot of middle America. Also this company is generally run very well so we can't blame bad management for the results. 50 cents was the expectation - they came in at 30 cents. And lowered guidance. The talking heads blame the miss on acquisition costs but when you spend more than 30 seconds looking at their report you see the truth. The truth that Ben Bernanke and team have failed to acknowledge the past few years - raging inflation.
- Darden Restaurants Inc., which operates the Olive Garden and Red Lobster restaurant chains, said Tuesday its fiscal second-quarter profit dropped 30 percent due to charges and higher costs for food, beverages and labor.
- For the quarter ended Nov. 25, net income fell to $43.5 million, or 30 cents per share, from $61.7 million, or 41 cents per share, in the prior-year quarter.
- The company said Olive Garden U.S.
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