LongHorn Steakhouse, operated by Florida-based Darden Restaurants Inc. (DRI), recently opened a 5,000 square feet restaurant, in Rochester, New York. The restaurant accommodates 200 guests and is the third LongHorn in the region. It was opened with managing partner, the industry veteran Steve Poletta.
On the same day, Darden also opened its first LongHorn Steakhouse in McAllen, Texas. This 6,300-square foot restaurant will be managed by another industry expert Angel Rodriguez and seat more than 240 guests. Last month, the company opened another 6,380 square-foot restaurant in Ohio.
LongHorn Steakhouse is a full service restaurant chain offering fresh steaks, salmon, shrimp, chicken, ribs, pork chops and burgers. Darden acquired the restaurant chain in October 2007 as part of the RARE Hospitality International acquisition.
The first LongHorn Steakhouse debuted in Atlanta 29 years ago and 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.
Compared with 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%, which is 1.5 percentage points better than Darden’s estimate. Improved promotions and increased media support drove the growth. On a two-year basis, total sales at LongHorn were up more than 17%, while the industry benchmark was down approximately 2%. In our opinion, Darden management remains keen on boosting its better performing brands and expanding aggressively.
Apart from new openings, the brand also remodeled 75 existing restaurants during the first nine months of fiscal 2011 and will work on 37 more during the fourth quarter.
We believe that with the opening of new restaurants in fiscal 2011, the leading full service restaurant chain is trying to gain market share, following an upswing in the restaurant industry, which faced extreme challenges due to the economic turmoil that resulted in weak labor and tight credit markets and reduced discretionary spending.
However, increased competition from other casual dining operators and surging food costs still remain concerns. Darden, which competes with Brinker International Inc. (EAT), currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We also reiterate our long-term Neutral rating on the shares.
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