Darden Restaurants Inc.
) posted fourth quarter and fiscal 2014 results. Earnings from
continued and discontinued operations of 65 cents per share
declined 35.6% year over year.
Darden Restaurants' adjusted earnings from continued operations of
55 cents missed the Zacks Consensus Estimate of 93 cents by 41.0%.
However, investors should note that the consensus figure includes
earnings from Red Lobster, which has been classified by the company
as discontinued operations. Including continued and discontinued
operations, the company's adjusted earnings stood at 84 cents,
still short of the consensus mark.
Higher costs and expenses and weak performance at its Olive Garden
Chain hurt earnings.
Adjusted earnings exclude the impact of costs of 19 cents
associated with its strategic action plan announced in Dec 2013.
In order to enhance shareholder value and leverage the benefits of
its strong position, Darden had announced a comprehensive plan to
separate its Red Lobster business in Dec 2013. The company recently
announced a definitive agreement to divest Red Lobster to private
equity firm, Golden Gate Capital, for $2.1 billion in cash. The
sale of the business is expected to be completed in the fiscal
first quarter of 2015. (Read More:
Darden to Sell Off Red Lobster
). As a result of the pending sale of Red Lobster, operating
results for Red Lobster were classified as discontinued operations.
As per the plan, the company also intends to lower unit expansion,
which will automatically reduce capital spending by at least $100
million on an annual basis.
The company owns and operates restaurant chains such as Red
Lobster, Olive Garden, LongHorn Steakhouse and The Specialty
Total sales from continuing and discontinued operations amounted to
$2.32 billion, up 0.86% year over year. Sales from continuing
operations of $1.65 billion increased 3.6% year over year due to
the operation of 69 net new restaurants and improved comps at
LongHorn Steakhouse and the Specialty Restaurants Group, partially
offset by comps decline at Olive Garden. However, sales missed the
Zacks Consensus Estimate of $2.29 billion by 27.8%. The Zacks
figure however takes into account revenues from Red Lobster, which
has been classified by the company as discontinued operations.
Comps at LongHorn Steakhouse increased 2.4%, worse than growth of
3.5% in the year-ago quarter but better than comps growth of 0.3%
in the prior quarter. Comps at Olive Garden declined 3.5% compared
to growth of 1.1% in the year-ago quarter but better than a decline
of 5.4% in the prior quarter.
Red Lobster comps declined 5.6% compared to growth of 3.2% in
fiscal fourth quarter 2013 and 8.8% in the prior quarter. After
posting a decline of 0.7% in the prior quarter, Specialty
Restaurant Group posted growth of 2.0% in the reported quarter,
marginally down from the year-ago comps of 2.1%.
Sales at Olive Garden declined 2.7% year over year to $926.0
million in fiscal fourth quarter 2014 due to a decline in comps,
partially offset by revenues generated from 9 net new restaurants.
At LongHorn Steakhouse, sales were up 10.8% to $376.0 million. As
many as 34 net new restaurants and positive comps contributed to
Sales at The Specialty Restaurant Group increased 15.9% to $342.0
million, thanks to comps growth of 4.0% at The Capital Grille, 4.1%
at Bahama Breeze, 0.8% at Yard House, and 0.3% at Eddie, partially
offset by comps decline of 1.6% at Seasons 52. The upside could be
attributed to higher revenues from 5 new The Capital Grille
restaurants, 4 Bahama Breeze restaurants, 7 Seasons 52 restaurants,
3 Eddie V's and 8 Yard House restaurants.
Sales at Red Lobster decreased 5.6% to $664.0 million due to a
decline in comps.
Total costs and expenses (excluding asset impairment charges)
during the reported quarter were $1.60 billion, up 6.1% year over
year mainly due to higher cost of sales and selling, general and
Full Year Highlights
Fiscal 2014 earnings per share of $2.15 declined 31.3% year over
year. However, earnings from continuing operations of $1.70 missed
the Zacks Consensus Estimate of $2.45 (which includes earnings from
Red Lobster) by 30.6%. Total sales from continuing and discontinued
operations of $8.76 billion were up 2.4% year over year. Sales from
continuing operations of $1.65 billion increased 3.6% year over
Darden will complete the divestiture of one of its underperforming
segments in fiscal first quarter 2015. The divestiture will help it
to focus on its more profitable brands like LongHorn Steakhouse and
Capital Grille. Moreover, in order to make the business more
profitable, the company is working on its comprehensive strategic
plan. However, the costs associated with the strategic action plan
are hurting its bottom line.
Other Stocks to Consider
Darden currently has a Zacks Rank #4 (Sell). Some better-ranked
stocks worth considering in the restaurant industry include
Buffalo Wild Wings Inc.
Burger King Worldwide, Inc.
Carrols Restaurant Group, Inc.
). While Buffalo Wild Wings sports a Zacks Rank #1 (Strong Buy),
Burger King Worldwide and Carrols Restaurant Group carry a Zacks
Rank #2 (Buy).
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