"The stock has corrected hard post the squeeze," says Hedgeye CEO Keith McCullough. "I want to take it off, for now, and put on some other short ideas."
Please note Hedgeye Restaurants analyst Howard Penney remains bearish on Darden. Here's a distillation of his bearish case from his original stock report on the company:
- Having pulled all the levers to create shareholder value, it’s now down to the facts about how Darden's core business is performing.
- Under the new business model the company is posting peak margins. In addition to significant capital investment, the company will need to invest in incremental food and labor costs to drive positive traffic across the enterprise.
- Olive Garden has been in need of a major remodel since FY2007. Olive Garden has about 400 older RevItalia restaurant models that are in dire need of remodeling... To date, Olive Garden has done 32 remodels, and is far behind schedule. Olive Garden makes up roughly 56% of sales and is in need of cash just to prevent declines.
- The company is in desperate need of a large capital investment to turn around their negative trends. Until management realizes, this the business will continue to decline and the stock will go with it.
