NEW YORK (AP) - Restaurant shares rose Wednesday along with the broader
markets, boosted by a solid first quarter earnings report by Darden Restaurants
Inc. and a JPMorgan upgrade on Ruby Tuesday Inc.
Darden, which operates the Olive Garden and Red Lobster restaurant chains,
reported a larger profit and higher revenue than Wall Street analysts were
expecting. But the company maintained its fiscal 2008 earnings guidance, which
kept analysts from upgrading the shares.
Banc of America Securities analyst Andrew M. Barish did raise his price
target on Darden stock to $49, from $48, and noted the chain's same-store sales,
or sales at stores open at least a year.
The chain said its same-store sales grew 7 percent at U.S. Red Lobster
stores and climbed 4.8 percent at U.S. Olive Garden restaurants in the quarter.
Same-store sales is a key indicator of retailer and restaurant performance
since it measures growth at existing units rather than newly opened ones.
"Stronger same-store sales and flattish margins continue to buck the trends
seen by many others in the challenging casual dining sector currently," Barish
said.
He added the chain should be able to keep its same-store sales up with new
promotions beginning in September.
Darden shares rose 82 cents to $44.66 in afternoon trading.
Also Wednesday, Ruby Tuesday shares regained some of their value after
JPMorgan analyst Steven Rees upgraded the stock to "Overweight" from "Neutral,"
saying the operator is now a buying opportunity. The shares dropped Tuesday
after the company said its first quarter profit fell, mainly due to lower
consumers spending.
The company blamed high gas prices, the housing market and more competition.
But Rees said the chain's plans to remodel its restaurants to appeal to a
more upscale demographic would help it boost sales in the long-run, even if it
faces higher costs for the next six months.
Shares rose 99 cents, or 5.2 percent, to $19.99 in afternoon trading, after
dropping 5.5 percent Tuesday.
Elsewhere in the sector, shares of sandwich chain Cosi Inc. continued to
climb after the company named James F. Hyatt as its new CEO Tuesday. Hyatt was
previously chief operations officer at fast food company Burger King Corp.
CIBC World Market analyst Jeffery D. Farmer called the appointment "a big
step in the right direction" in a note to investors.
Cosi shares climbed 15 cents, or 4.3 percent, to $3.64, after rising 2.6
percent Tuesday.
Elsewhere in the sector, shares of casual dining chain Max & Ermas
Restaurants Inc. dropped to a 52-week low of $6.01 after its Chief Executive
Todd Barnum said he would retire and the chain reported a wider loss for its
third quarter. The company said the loss was due partly to a same-store sales
drop of 3.6 percent as consumers spent less.
The company also said although it is still exploring a possible sale, its
third quarter results and a tightening of the country's debt markets have made
for a "difficult process."
By the afternoon, the shares were down 70 cents, or 9.9 percent to $6.40.
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