(DRI) Darden Restaurants Opens LongHorn in San Antonio

LongHorn Steakhouse, operated by Darden Restaurants Inc. (DRI), recently opened a 6,200-square foot restaurant, in San Antonio, Texas. The restaurant accommodates 240 guests and is the fifth LongHorn in the region. Industry veteran David Marchlewski will assume the role of managing partner in the new restaurant.

The Florida-based company started the construction of the restaurant in January this year and management initially expected to launch it in April 2011. LongHorn, which debuted in San Antonio in January 2010, is expanding its presence in the region as people are fond of its quality of food and comfortable atmosphere.

Last month, LongHorn also opened one 5,600-square foot restaurant in Bluffton, South Carolina and another 5,000-square foot restaurant in Kingsland, Georgia. Both the restaurants have a capacity of more than 200 guests.

LongHorn Steakhouse is a full service restaurant chain, which Darden acquired in October 2007 as part of the RARE Hospitality International acquisition.

The first LongHorn Steakhouse debuted in Atlanta 29 years ago and the brand has been growing steadily since then. During the recently concluded third quarter, LongHorn Steakhouse opened 21 new restaurants.

Management expects to open 20–25 LongHorn Streakhouse units by the end of this year. Including other brands, Darden is targeting 70–75 total unit openings for fiscal 2011. For 2012, Darden plans to debut 30–35 LongHorn restaurants. Presently, the brand operates 350 restaurants in 33 states. Apart from opening new restaurants, the brand also remodeled existing restaurants to drive traffic.

Compared to other core brands of Darden like Olive Garden and Red Lobster, Longhorn Streakhouse is better positioned to sustain the growth momentum.

LongHorn Steakhouse’s third quarter U.S. same-restaurant sales increased 6.1% and we expect the brand to deliver strong results in the upcoming quarters, based on improved promotions and increased media support. In our opinion, Darden management remains keen on boosting its better performing brands and expanding aggressively.

We believe new restaurant openings are indicative of the company’s efforts to gain market share in the gradually recovering restaurant industry.

However, increased competition from other peers such as Brinker International Inc (EAT) and Red Robin Gourmet Burgers Inc (RRGB), and spike in food costs still remain headwinds.

Darden currently retains a Zacks #3 Rank, implying a short-term Hold rating. We also reiterate our long-term Neutral recommendation. Darden is slated to release its fourth quarter 2011 earnings results on June 30. We expect the company to report fourth quarter earnings in line with the Zacks Consensus Estimate of 99 cents.

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