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After trending downward from March to July, Darden Restaurants (DRI) has been quietly making a comeback, trading to a new 52-week high on Friday. This operator of several restaurant chains (Olive Garden, LongHorn Steakhouse, Ruth's Chris, and Chuy's) was a recent YIELD Leaders profile for us in August and has been a good performer. We wanted to provide some quick color ahead of its Q2 (Nov) results on December 19.

• After a long period of being pretty quiet, Darden has been active on the M&A front in recent years. In June 2023, Darden acquired upscale steakhouse chain Ruth's Chris. At the time, Brieifng.com said it liked the deal as it gives Darden both a mid-tier and an upper-tier steakhouse chain. We also think its larger size will allow Darden to better negotiate beef prices for both chains. Tightening cattle supply has been keeping beef prices elevated.
• More recently, in October 2024, Darden closed on its acquisition of Chuy's, a Tex-Mex-inspired full-service casual dining restaurant chain. Darden sees Chuy's as complementing its existing portfolio and what's notable about Chuy's is that it's Darden's first foray into the popular Mexican dining category. Darden described Mexican as one of the fastest growing dining categories, and Chuy's is the largest full-service operator with strong unit economics.
• Darden's recent earnings have not been great. The company was surprised by a significant step down in traffic during July, which led to Q1 (Aug) EPS being lower than expected and that dragged down shares. However, sales trends rebounded in August and the first three weeks of September improved further, resulting in positive comps quarter-to-date for Q2 (Nov). We look forward to getting an update on the Q2 call in a couple of weeks.
• Comps is Q1 were not great either, at -1.1% (OG -2.9%, LS +3.7%, Fine Dining -6.0%), which was softer than Q4's flat comps (OG -1.5%, LS +4.0%, Fine Dining -2.6%). We suspect the positive comments on the last call is causing investors to think we will see improvement with its Q2 comps.
• Another recent highlight was Darden announcing a deal with Uber, which will enable customers to order delivery via Darden channels, with delivery handled by Uber Direct. An initial pilot is underway with a national expansion at Olive Garden expected to be complete by May 2025. DRI said that customers have been asking for home delivery and are willing to pay. DRI is initially focusing on Olive Garden, but may expand to other brands.

Overall, we have seen a notable uptick in shares of restaurant operators in recent weeks, with many at or near new 52-week highs, including Darden, Brinker (EAT), Cheesecake Factory (CAKE), BJ's Restaurants (BJRI), and Texas Roadhouse (TXRH). The notable exception is Bloomin' Brands (BLMN), which operates Outback Steakhouse, Carrabba's Italian Grill and others. It is near new lows. We profiled DRI in August in our YIELD report because there was an increase in insider buys and it has done well since.