Olive Garden has a problem, and it has nothing to do with how warn the baskets of bread sticks arriving to your table are, or the fettuccine not tasting as fresh to you as it once did.
Darden Restaurants (DRI) — the parent company of Olive Garden, Red Lobster, and LongHorn Steakhouse — is in a funk; earnings and same-restaurant sales both declined during the fiscal year that ended in May.
Comps rebounded in Darden’s latest quarter, but that rise came at the expense of heavy promotional activity, and profitability took a 12 percent hit.
It’s not just Darden. The casual dining industry itself is going through an identity crisis as customers are choosing fresher concepts that give diners the convenience, quality, and value that they desire. Analysts see Darden and Chili’s parent Brinker (EAT) growing in the low- to mid-single digits through the next couple of years.
But there are some far more appetizing operators out there.
If investors are hungry for something a little more exciting, thankfully there’s no shortage of faster growing publicly traded restaurant chains that are doing just fine.
So sorry, Olive Garden. You may still offer tasty breadsticks, but that’s not the kind of rising dough that investors — and diners — crave these days.
One of this summer’s hottest IPOs was for Noodles Company (NDLS), a fast casual restaurant chain that specializes in all types of noodles. Olive Garden bashers will find plenty of Italian pastas on the menu, but diners can also be globetrotters by checking out Asian noodle bowls or come closer to home with the classic Americana comfort food of mac and cheese.
Unlike the many table service restaurants facing an alarming number of empty tables, Noodles Company has delivered positive comps in 29 of the past 30 quarters. Revenue climbed 17 percent to $300.4 million last year, and it’s on pace for similar growth through the first half of this year.
Ignite Restaurant Group (IRG) owns and operates 134 Joe’s Crab Shacks and 16 Brick House Tavern + Taps. The operator essentially doubled in size in April when it acquired smaller Olive Garden rival Romano’s Macaroni Grill. The 186-unit Italian casual dining chain was once owned by Brinker, and it’s a work in progress. Comps were positive at Ignite’s two original concepts in its latest quarter, but the same can’t be said for Macaroni Grill.
Then again, the sluggish performance at Macaroni Grill also led to an attractive acquisition price. With Macaroni Grill butting pasta bowls with Olive Garden and Joe’s Crab Shack fishing against Red Lobster, we can possibly call Ignite a mini Darden. That’s a good thing, especially since Ignite has a lot of room for any of its three concepts to grow before it saturates the market.
Casual dining and Mexican don’t mix well over time. There’s probably a shuttered El Torito, Chi Chi’s or Chevy’s somewhere near you.
However, Chuy’s (CHUY) has raised the bar by creating a lively environment filled with Elvis shrines and customer-submitted dog photos, and it’s winning over patrons with its extensive happy hour specials and a bargain-minded menu where nearly every entree costs less than $10.
Chuy’s sales surged 23 percent in its latest quarter, and with just 45 locations across twelve states, there are still plenty more places for pooch snapshots and Elvis busts to go up.
As one of the largest franchisees of Buffalo Wild Wings (BWLD), Diversified’s (BAGR) largest concept is no stranger to most sports bar enthusiasts. However, the reason that Diversified makes the cut is because it’s in the process of rapidly expanding its proprietary Bagger Dave’s Legendary Burger Tavern.
There were just 13 of the full-service, ultra-casual restaurant and bar units open by the end of June, but Diversified is hoping to open another six locations later this year. It may soon rival the nearly three dozen Buffalo Wild Wings eateries that it currently watches over. The genius here is that it’s probably putting a lot of what it learned at Buffalo Wild Wings into practice at Bagger Dave’s.
Revenue soared 61 percent in its latest quarter, propelled almost entirely by new restaurants, but there was still a healthy 7 percent spike in same-store sales during the period.
Customers looking to trade up from fast food without shelling out more in time and money at a casual dining concept are flocking to fast casual chains that deliver quality ethnic dishes quickly.
Fiesta (FRGI) owns and operates 96 Pollo Tropical restaurants (primarily in South Florida) and 164 Taco Cabana eateries (mostly in Texas). The company also has dozens of franchised locations, especially overseas, as its Latin American-inspired Pollo Tropical rotisserie chicken has proven to be a potent export.
Revenue climbed 9 percent in its latest quarter, fueled by a healthy 6 percent spike in same-restaurant sales at Pollo Tropical.
Motley Fool contributor Rick Munarriz has been covering the food and restaurants industry for Motley Fool since 1995. He has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings. The Motley Fool owns shares of Buffalo Wild Wings and Darden. Try any of The Motley Fool newsletter services free for 30 days.