Darden's (DRI) Q3 Earnings: Olive Garden & LongHorn Hold Key

Darden Restaurants, Inc. (NYSE:DRI) is scheduled to report third-quarter fiscal 2019 results on Mar 21. In the last reported quarter, the company registered in-line earnings. Notably, Darden’s bottom line has surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 4%.

How are Estimates Faring?

The Zacks Consensus Estimate for third-quarter earnings is pegged at $1.75, up by a cent over the past 7 days. This reflects a 2.3% gain from $1.71 registered in the year-ago quarter. Revenues are expected to be $2,238 million, mirroring a 5.2% improvement year over year.

Let’s delve deep to unearth the factors that are likely to impact Darden’s third-quarter fiscal 2019 results.

Factors at Play

Darden Restaurants’ results in the to-be-reported quarter are likely to be driven by robust performance at Olive Garden, LongHorn and Fine Dining.

Olive Garden, which posted the 17th consecutive quarter of positive comps in the second quarter, is likely to continue with the trend in the soon-to-be-reported quarter. In order to boost the performance of the Olive Garden brand, the company implemented a set of initiatives under its Brand Renaissance Plan. These initiatives included simplifying kitchen systems, improving sales planning and scheduling, operational excellence to improve guest experience, developing new core menu items, allowing customization, and making smarter promotional investments. These apart, the brand is focusing on remodeling and bar refreshes.

At LongHorn, the company strives to attract its guests by focusing on the core menu, culinary innovation and providing regional flavors. It is also working on its marketing strategy to improve execution, customer relationship management and digital advertising as well as strengthen promotional pipeline that leverages the segment’s expertise.

Backed by strategic investments in quality and simplification of operations, Darden continues to focus on strengthening its in-restaurant execution to augment guest experience. Owing to these efforts, segment comps have registered growth for 23 consecutive quarters.

However, higher labor costs due to increased wages are likely to hurt margins. Further, total operating costs and expenses increased 5.2% year over year in the first six months of fiscal 2019. This downside can be attributed to an overall increase in food and beverage costs, restaurant labor and expenses, and marketing costs. As a result, operating margin in the period contracted 50 basis points (bps) on a year-over-year basis.

Darden Restaurants, Inc. Price, Consensus and EPS Surprise

What Does Our Model Say?

According to our quantitative model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has a fair chance of beating estimates. Meanwhile, stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Darden has an Earnings ESP of +1.07% and a Zacks Rank #2, a combination that increases the odds of an earnings beat.

Other Stocks to Consider

Here are some other companies in the Retail-Wholesale sector that according to our model possess the right combination of elements to post an earnings beat in the respective earnings season:

MarineMax, Inc. (NYSE:HZO) has an Earnings ESP of +16.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) has an Earnings ESP of +1.32% and a Zacks Rank #3.

Group 1 Automotive, Inc. (NYSE:GPI) has an Earnings ESP of +2.26% and a Zacks Rank #3.

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