Casual-dining bellwethers Brinker International Inc. and Darden Restaurants Inc. this week will provide outlooks for the year ahead amid a worsening picture for many chains in the segment.
While the entire restaurant industry suffers during a domestic recession, casual-dining concepts have been particularly hard hit from consumer trade down to less-expensive options and years of what some analysts say was overbuilding. The negative traffic and unit closures reported from numerous casual-dining operators have led some to question the segment’s future, especially among the large national chains.
“In the last quarter, restaurant industry traffic turned negative for the first time since 2003,” said David Palmer, restaurant analyst at UBS Securities LLC. “However, ahead of this more acute cyclical downturn, the slowing of casual-dining chain demand has been evident — and perhaps indicative of the staleness of the national chain brands and the marginalization of their value, due to premiumization of menus at fast food.”
Palmer said that casual-dining traffic this past fall declined more at chains than at independents, with traffic dropping 3 percent at major chains and 11 percent at smaller chains compared with flat year-to-year traffic growth at independents.
“Are today’s leading casual dining chains losing their relevance in the minds of consumers?” he asked in his note Wednesday. “Are the consumers that have grown up on chain restaurants finding increasingly suitable quality at fast-food chains, or at their home grill?”
Pundits have discussed for nearly a year whether a decline in relevance among casual-dining chains will be the segment’s downfall, or whether the largest of chains, like Brinker and Darden, can use their scale and expertise to conduct a turnaround.
On Thursday morning, Brinker will report its fiscal second quarter, which many analysts say will include continued negative same-store sales and perhaps even a downgraded outlook for the remainder of its June-ended fiscal year. On the positive side, analysts expect the company to discuss a renewed focus on its flagship Chili’s Grill & Bar chain, and improved cash flow. Dallas-based Brinker is parent to about 1,700 restaurants under the Chili’s Grill & Bar, Maggiano’s Little Italy and On the Border Mexican Grill & Cantina brands. Late last year it sold a majority stake in Romano’s Macaroni Grill.
On Thursday and Friday, Darden will host its annual investor meeting at its Orlando, Fla., headquarters, and some analysts expect the company to provide sales trends that show a deceleration in guest traffic from the company’s latest November-ended quarter. Combined same-store sales for that quarter at Olive Garden, Red Lobster and LongHorn Steakhouse fell 0.2 percent. On the positive side, Darden has proved successful at managing costs and operating two chains – Olive Garden and Red Lobster – that have fared better than most during the segment’s sales slump. The company’s 1,700 restaurants operate under the Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze and Seasons 52 brands.
Late Wednesday, Darden reaffirmed its full-year guidance, which includes an expected combined U.S. same-store sales decline of between 1.25 percent and 2.25 percent for Red Lobster, Olive Garden and LongHorn Steakhouse. Total sales are expected to increase between 8 percent and 10 percent from fiscal 2008, and reported earnings per share from continuing operations are expected to drop between 1 percent and 6 percent.
