Darden Restaurants, Inc.
) announced weak preliminary results for fiscal third quarter
2013 though re-affirming its outlook for 2014. Moreover, the
company reiterated its plan to separate its Red Lobster business
either through sale or spin-off. The company will report its
fiscal third quarter 2014 results on Mar 21, 2014.
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Darden Restaurants expects earnings of 82 cents per share in
fiscal third quarter 2014, down 19.6% year over year. The
anticipated hird quarter earnings also missed the Zacks Consensus
Estimate of 94 cents by 12.8%. The downside reflects lower sales
and higher direct costs due to inclement weather. Moreover,
Darden's bottom-line will also be hurt by the costs associated
with its strategic action plan announced in Dec 2013.
The company owns and operates restaurant chains such as Red
Lobster, Olive Garden, LongHorn Steakhouse and The Specialty
Restaurant Group. Comps at all the chains were sluggish due to
the severe winter and difficult year over year comparisons.
The company expects comps at LongHorn Steakhouse to increase
0.3%, better than a decline of 1.6% in the year-ago quarter but
down from comps growth of 5.0% in the prior quarter. Comps at
Olive Garden are expected to decline 5.4%, worse than a decline
of 4.1% in the year-ago quarter and 0.6% in the prior quarter.
Red Lobster comps are expected to decline 8.8%, higher than a
decline of 6.6% in fiscal third quarter of 2013 and 4.5% in the
Following positive comps in the past two fiscal quarters, the
Specialty Restaurant Group comps are expected to decline
approximately 0.7% in the quarter. The Group posted comps growth
of 2.3% in the year-ago quarter and 4.1% in the prior quarter.
However, the company retained its previously provided outlook for
fiscal second quarter. In fiscal 2014, the company expects
earnings per share to decline in the range of 15.0% to 20.0% year
over year. Management reiterated the guidance hoping that the
impact of the inclement weather and other challenges in the third
quarter would be somewhat offset by the cost control measures
adopted by it.
As a result of its strategic action plan, the company expects
savings of at least $60 million annually beginning fiscal year
2015. In fact, the Red Lobster sales fall under this plan. The
company had announced its strategic plan in Dec 2013 in order to
enhance shareholder value and leverage the benefits of the
Slower macroeconomic recovery, adverse impact of the Affordable
Care Act and faltering consumer confidence are expected to be
headwinds for Darden in fiscal 2014. Although Darden has
undertaken a set of initiatives to boost its business, we remain
skeptical until definitive signs of improvement are noticed. The
company presently has a Zacks Rank #4 (Sell).
Some better-ranked stocks in the restaurant industry include
Brinker International, Inc.
Buffalo Wild Wings Inc.
Burger King Worldwide, Inc.
). All these stocks carry a Zacks Rank #2 (Buy).