Darden Expects Weak Q3, Re-Affirms Outlook - Analyst Blog


Darden Restaurants, Inc. ( DRI ) 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.

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 prior quarter.

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 company's position.

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. ( EAT ), Buffalo Wild Wings Inc. ( BWLD ), and Burger King Worldwide, Inc. ( BKW ). All these stocks carry a Zacks Rank #2 (Buy).

BURGER KING WWD (BKW): Free Stock Analysis Report

BUFFALO WLD WNG (BWLD): Free Stock Analysis Report

DARDEN RESTRNT (DRI): Free Stock Analysis Report

BRINKER INTL (EAT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BKW , BWLD , DRI , EAT



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