Zacks_Analysts' Blog : Darden Spreads Wings in Mexico - Analyst Blog

Florida-based Darden Restaurants Inc. (DRI) recently announced that it has inked a development agreement with a Mexican casual dining company, CMR, to enter the Mexican market. CMR will develop and operate all three Darden brands –– Red Lobster, Olive Garden and LongHorn Steakhouse –– in Mexico. The terms of the deal were not disclosed.

Per the deal, CMR will set up 37 restaurants in Mexico over the next ten years. This deal affirms management’s intent to make Mexico one of the prime markets for Darden’s international expansion.

CMR is the one of the largest casual dining companies in Mexico with more than 100 restaurants in 26 cities throughout the region. The company enjoys local market knowledge and has a proven track record of owning and franchising imported as well as in-house brands including Fonda Mexicana, Destileria, Elago and Chili's of Brinker International Inc. (EAT). Another  U.S. restaurant chain, P.F. Chang's China Bistro Inc. (PFCB) has a strong presence in Mexico.

Darden has successfully owned and operated restaurants in the domestic market while many of its international locations are operated by franchise partners. We believe that the company is trying to spread its presence beyond the U.S. more aggressively following cut-throat competition in the rather saturated domestic casual dining market.

Apart from this development, the company has a five-year developmental agreement with Americana Group of Kuwait to cater to the Middle Eastern market. Last month, Darden saw the opening of Red Lobster in Dubai, its first restaurant in the Middle East. The company also has five franchised LongHorn Steakhouse restaurants in Puerto Rico.

Darden currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We also maintain our long-term “Neutral” recommendation on the stock.