Zacks_Analysts' Blog : Two Eddie V's Join Darden - Analyst Blog

Darden Restaurants Inc. (DRI) recently inked a definitive agreement to purchase two Eddie V's Restaurants Inc. restaurant brands –– Eddie V's Prime Seafood and Wildfish Seafood Grille. The all-cash $59 million transaction is expected to be sealed by this year-end.

Post acquisition, both chains will come under Darden's Specialty Restaurant Group (SRG), which includes Capital Grille, Bahama Breeze and Seasons 52. There are currently eight Eddie V's restaurants and three Wildfish restaurants in Texas, California and Arizona. Eddie V’s president and CEO will continue to play a pivotal managerial role.

Founded in 2000, Eddie V's is a leading luxury seafood brand with strong consumer demand, high unit volumes and solid returns on invested capital which make it a lucrative target. Wildfish is Eddie V's sister concern that debuted in 2005.

The deal is in sync with Darden’s strategy to provide impetus to SRG as the group represents a meaningful long-term growth vehicle. With continued underperformance of one of its core brands Olive garden, Darden is shifting its focus toward relatively newer concepts. Collectively, SRG brands are gaining solid acceptance, thanks to strong unit volumes. In the first quarter of 2012, revenue at SRG was $129.8 million, up 20.7% year over year on the back of same-restaurant sales increases of 7.0% at The Capital Grille, 2.9% at Bahama Breeze and 2.5% at Seasons 52. We believe operating all these concepts under one roof will also provide Darden with economies of scale.

From this deal, Darden and Eddie V’s will also derive synergies as both operate in the same vertical. Both companies focus on seafood. As a point of reference, Seafood accounts for approximately 30% of Darden’s total food costs. Shrimp is contracted (the company's largest volume protein) through the third quarter of 2012 while Lobster usage and crabs are contracted through the third and fourth quarters of 2012.

Florida-based Darden anticipates the transaction to be neutral to its current fiscal year’s earnings per share considering acquisition-related costs and projected operating results at Eddie V's and Wildfish.  

Darden, which competes with Kona Grill Inc. (KONA) and The Wendy's Company (WEN), currently retains a Zacks #3 Rank, which translates into a short-term Strong-Hold rating. We also maintain our long-term Neutral recommendation on the stock.