Despite Olive Garden Sales Boost, Darden Isn’t a ‘Buy’: Analyst
Even though Darden Restaurants’Olive Garden chain posted its first quarterly same-store sales increase in more than a year on Friday, one analyst still does not think the company is a “buy.”
“Our industry sources are saying that casual dining sector sales are slowing down, so we think that’s why the stock is off today and we have concerns,” said Mark Kalinowski, a restaurant analyst at Janney Montgomery Scott.
Olive Garden produces almost half of the company’s revenue. The brand’s improvement was fueled in part by mild winter weather in January and February, but March does not look like it is getting a weather lift so far, Kalinowski said.
While he has a “neutral” rating on the stock with a $52 price target, he said his top pick is Starbucksnow.
“When you look at chain casual dining restaurants in aggregate, their January and February same-store sales were up roughly 3 percent and right now, our best guess is that March is going to be flat to up 1 percent,” he said.
Darden’s Chief Executive Clarence Otis told analysts during a call that “the need for affordability continues” at Olive Garden. He added that concerns about the job market and gas prices are still weighing on customers’ minds.
Although Olive Garden is trying to better align its value offerings with what today’s consumer wants, analyst Kalinowski thinks this change has already been priced into the stock, which has risen so far this year.
Yet while he does have concerns for the industry about commodities, he said Darden looks fairly well positioned within the industry.
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Disclosure ininformation for Kalinowski or Janney Montgomery Scott was not immediately available.
Follow Katie Little on Twitter @katie_little.