Where's the Growth for Darden?

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You may not recognize the name Darden Restaurants (NYSE: DRI), but their portfolio holds some of the most recognized names in the restaurant business.  Darden is home to the Olive Garden, Red Lobster, and Longhorn Steakhouse.  These household names have been around for awhile, and we could talk about the moves they are making to stay relevant, profitable, and growing in today's world.  But rather than focus on these core restaurants, I would like to introduce you to another page in Darden's portfolio: the Specialty Restaurant Group.

Show Me the Growth

Before we dive into the Specialty Restaurant Group, let's take a look at a couple key Darden metrics.

Net Income has been growing at a very steady and respectable rate for Darden.

<img src="http://media.ycharts.com/charts/80c627ba0175a68eb10b24394061f7e7.png" />

DRI Net Income TTM data by YCharts

Chipotle Mexican Grill (NYSE: CMG) and Buffalo Wild Wings (NASDAQ: BWLD) are poster children for earnings growth.  BJ's Restaurants (NASDAQ: BJRI) has been a fairly recent favorite for growth. These three companies outpaced Darden's growth over the past 5 years, but Darden has been plodding along at about the same rate as McDonald's (NYSE: MCD).

However, what's cool about Darden is they don't have the high P/E ratio that the other guys have.  And they have a good dividend also.

<table> <tbody> <tr> <td><strong>Company</strong></td> <td><strong>P/E Ratio</strong></td> <td><strong>Dividend/Yield</strong></td> </tr> <tr> <td>Darden Resaurant's</td> <td>14.41</td> <td>$2.00/3.8%</td> </tr> <tr> <td>McDonald's</td> <td><span>16.33</span></td> <td><span>$3.08/3.6%</span></td> </tr> <tr> <td>Buffalo Wild Wings</td> <td><span>26.17</span></td> <td>n/a</td> </tr> <tr> <td>BJ's Restaurants</td> <td><span>27.35</span></td> <td>n/a</td> </tr> <tr> <td>Chipotle Mexican Grill</td> <td>29.24</td> <td>n/a</td> </tr> </tbody> </table>


They aren't growing as fast as the other guys, yet they make up for this with a low P/E ratio and high dividend yield.  But make no mistake about it:  this company is growing.

The Specialty Restaurant Group

37% of Darden's overall sales growth is coming from the Specialty Restaurant Group.  This branch of Darden is basically responsible for managing all the "other" restaurant brands that Darden owns.  This includes non-core restaurants The Capital Grill, Bahama Breeze, Seasons 52, Eddie V's, and the recently acquired Yard House.  All these chains currently have just a handful of locations, so there's plenty of room to run.

Right now they have been charged with the task of "effectively managing accelerated growth."  I like how that sounds.  What does it mean?  "In the second quarter, we plan to open 2 Capital Grille restaurants, 3 Seasons 52 restaurants, 1 Bahama Breeze and 1 Yard House."

That may not sound like much, but let's take a closer look.  Keep in mind these numbers are for the quarter.

<table> <tbody> <tr> <td><strong>Restaurant</strong></td> <td><strong>Current Locations</strong></td> <td><strong>Additions</strong></td> <td><strong>Percentage Change for the Quarter</strong></td> </tr> <tr> <td>Capital Grille</td> <td>46</td> <td>2</td> <td>4%</td> </tr> <tr> <td>Seasons 52</td> <td>23</td> <td>3</td> <td>13%</td> </tr> <tr> <td>Bahama Breeze</td> <td>30</td> <td>1</td> <td>3%</td> </tr> <tr> <td>Yard House</td> <td>30</td> <td>1</td> <td>3%</td> </tr> </tbody> </table>


Specialty Restaurant Group is also heading up the integration of Yard House into the Darden portfolio.  Yard House is an exciting concept.  This chain first opened 16 years ago with the mission of having one of the largest selections of draft beer anywhere.  The atmosphere is unique with original art decorating the place, and classic rock hits playing over a high-quality sound system.  This concept sounds like something that could attract some serious customer loyalty.
This is just a very small part of the picture for Darden.  There are a lot more factors to consider, but I like this growth in particular.  It looks like Darden is effectively positioning themselves to continue serving up profits and growth for the long-term.

thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of BJ's Restaurants, Buffalo Wild Wings, Chipotle Mexican Grill, Darden Restaurants, and McDonald's. Motley Fool newsletter services recommend BJ's Restaurants, Buffalo Wild Wings, Chipotle Mexican Grill, and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.

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