Darden (DRI) Meets Q1 Earnings Estimates, Raises EPS View

Darden Restaurants, Inc. (NYSE:DRI) reported mixed results in the second quarter of fiscal 2019, wherein earnings met estimates while revenues lagged the same.

Adjusted earnings of 92 cents per share were in line with the Zacks Consensus Estimate. The bottom line increased 26% year over year on the back of higher revenues. Results were aided by the company’s relentless efforts in improving the basic operating factors of the business — food, service and atmosphere.

Total revenues of $1.973.4 million lagged the consensus mark by 0.4%. However, revenues increased 4.9% from the prior-year quarter. The upside was driven by sales growth across most of the brands.

Following the quarterly results, shares of Darden barely moved in the pre-market trading. In a year’s time, however, the stock has gained 2.2%, slightly underperforming its industry’s 5.4% growth.

Revenues by Segments

Darden reports business under four segments — Olive Garden, LongHorn Steakhouse, Fine Dining that includes The Capital Grille and Eddie V's, and Other Business.

In the fiscal second quarter, the company’s legacy brands posted blended comps growth of 2.1%. In the fiscal first quarter, comps increased 3.3%.

Sales at Olive Garden were up 4.9% year over year to $998.1 million. Comps grew 3.5% at the segment, higher than the prior quarter’s comp growth of 5.3%. Traffic fell 0.8% despite 1.9% improvement in pricing and 2.4% growth in menu mix.

Sales at Fine Dining increased 4.3% to $146.7 million. Comps at The Capital Grille rose 3.7% compared with 3.9% reported in first-quarter fiscal 2019. Eddie V's also posted comps growth of 0.9%, lower than 3% improvement recorded in the last reported quarter.

Revenues from Other Business jumped 3.6% year over year to $416 million. However, comps at Seasons 52 fell 0.8% in the reported quarter compared with comps decline of 1.9% in first-quarter fiscal 2019. Comps at Yard House edged down1.1% against 0.6% increase in the last reported quarter. Meanwhile, comps slipped 1.1% at Bahama Breeze, flat quarter over quarter.

At LongHorn Steakhouse, sales rose 6.4% to $412.6 million. Comps at LongHorn Steakhouse increased 2.9%, down from comps growth of 3.1% in the fiscal first quarter. Traffic decreased 0.1% while pricing and menu mix grew 1.7%, and 1.3%, respectively.

In the reported quarter, comps at Cheddar's decreased 4%, same as the prior quarter’s decline.

Darden Restaurants, Inc. Price, Consensus and EPS Surprise

Operating Highlights & Net Income

In the fiscal second quarter, total operating costs and expenses increased 4.1% year over year to $1,825.3 million. The upside was driven by an overall increase in food and beverage costs, and restaurant expenses. Operating margin in the reported quarter expanded 70 basis points (bps) on a year-over-year basis.

Net earnings in the fiscal second quarter were $115.6 million, recording 36.5% growth from the year-ago level.

Balance Sheet

Cash and cash equivalents as of Nov 25, 2018, totaled $139.7 million, up from $146.9 million as of May 27, 2018.

Inventories totaled$209.4 million at the end of the reported quarter. Goodwill, as a percentage of total assets, was 21.3% in the quarter.

Long-term debt as of Nov 25, 2018, was $927.1 million, up from $926.5 million as ofMay 27, 2018.

During the fiscal second quarter, the company repurchased approximately 0.6 million shares of its common stock for roughly $61 million. The company still has $419 million remaining under the current $500-million repurchase authorization.

Fiscal 2019 Outlook

For fiscal 2019, the company still expects total revenues of 5-5.5%. Comps are projected to increase 2.5% compared with 2-2.5% mentioned previously. Darden’s diluted earnings per share are anticipated to be $5.60-$5.70, up from $5.52-$5.65 mentioned initially.

Zacks Rank & Other Stocks to Consider

Currently, Darden carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the industry are BJ’s Restaurants (NASDAQ:BJRI) , Dunkin’ Brands (NASDAQ:DNKN) and El Pollo Loco (NASDAQ:LOCO) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BJ’s Restaurants, Dunkin’ Brands and El Pollo Loco’s earnings for 2018 are expected to increase by 66.7%, 16.9% and 14.3%, respectively.

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