Darden: Don?t Count Olive Garden Out, Says Goldman

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Olive Garden has been a major drag on results at Darden Restaurants (DRI), which has otherwise been performing relatively well. But in a note today, Goldman Sachs analyst Michael Kelter argued that Olive Garden can make a comeback from recent weakness, and prove to be a big boost to Darden shares, which he rates at Buy. Olive garden accounts for 45% of Darden’s sales.

Olive Garden’s problem was that consumers started to think the food wasn’t a value. But sentiment appears to be shifting, Kelter wrote.

“However, as of our latest brand survey, conducted in early-mid December, Olive Garden’s value rank began to recover relative to those of its competitors, suggesting that recent steps taken to re-emphasize to consumers the concept’s value message are having an effect. Given the relationship between OG’s value ranking and same-store-sales over the past year, this improvement may portend a turnaround in relative same-store-sales as well. This said, it is not our base case that results rebound immediately. Rather we are cautiously optimistic that this portends a turnaround when combined with other promotional efforts, the coming new menu and the impending new advertising campaign.”

Original Article Source by Barrons.com