Is Darden's Bad Quarter a Sign of Restaurant Stocks' Bubble Popping?
NEW YORK (TheStreet) -- Darden Restaurants'
Darden shares opened lower and are down 2.2% as of 11:30 a.m. and nearly 11% year to date. Shares are in the $48.40 range.
The primary culprit for the shortfall was rising costs. Cost of goods sold -- which includes food, labor, and other restaurant expenses -- rose from 78.1% of sales for the same quarter last year, to 79.8% this quarter. Same-store sales were also weak at the company's flagship brands, falling 3.5% at Olive Garden and 5.6% at Red Lobster.
The major question is whether the rising-cost theme will continue to play out in restaurant land, cutting margins and/or increasing costs to consumers.
We've already seen the prices of former dollar-menu items at McDonald's
Some of the storm clouds for the industry are already here, and there are more on the horizon.
First, food prices are on the rise. Despite the rather benign inflation numbers presented by the Consumer Price Index, food prices are rising precipitously. According to the Bureau of Labor Statistics, the prices of meats, poultry, fish and eggs hit an all-time high in May and have risen 7.7% year to date.