Darden Restaurants Inc.
) first-quarter fiscal 2014 earnings from continuing operations
of 53 cents per share missed the Zacks Consensus Estimate of 69
cents by nearly 23.2%. Quarterly earnings were also down 37.6%
from the year-ago level. Margin shortfall pressurized earnings
during the quarter.
Total revenue grew 6.1% year over year to $2.16 billion,
driven by new unit openings and 0.5% same-restaurant sales growth
in the Specialty Restaurant Group. However, revenues also fell
shy of the Zacks Consensus Estimate of $2.18 billion.
The company owns and operates restaurant chains such as Red
Lobster, Olive Garden, LongHorn Steakhouse and The Specialty
Combined comps at the company's three core brands - Olive Garden,
Red Lobster and LongHorn Steakhouse - were down 3.3%. Comps
declined 4.0% at Olive Garden and 5.2% at Red Lobster. Only
LongHorn Steakhouse managed to post comps growth of 3.2%.
Olive Garden's sales were down 0.4% year over year to $918
million in the first quarter, owing to a 4.0% decline in
Sales at Red Lobster decreased 5.5% to $624 million due to a
5.2% decline in U.S. comps and closure of one unit.
At LongHorn Steakhouse, sales were up 14.2% to $325 million.
As many as 47 net new restaurants and 3.2% improvement in comps
contributed to the upside.
Sales at The Specialty Restaurant Group increased sharply by
72.7% to $282 million, thanks to comps growth of 3.2% at The
Capital Grille, 2.7% at Bahama Breeze and 2.1% at Eddie V's,
However, Seasons 52 and Yard House were laggards in the quarter
having registered a respective decline of 4.4% and 1.5% in comps.
Net new unit openings, sales gain from 40 Yard House restaurants
and the opening of 6 Yard House restaurants since its acquisition
also helped drive comps.
Guidance for 2014
Darden expects the business environment to remain sluggish in
fiscal 2014. According to the company, consumers have become
extremely value-sensitive and economic recovery will be slow.
Orlando, FL-based Darden reiterated its expectation for
blended comps growth for its three core brands in the range of
flat to up 2%.
Despite lower-than-expected first quarter results, the company
has maintained its earlier guidance of a 3% - 5% year-over-year
decline in earnings per share. Tough year-over-year comparison is
expected to lead to this decline.
Darden plans to reduce its annualized operating support
spending by approximately $50 million through layoffs and lower
program spending. Of the anticipated gains, $25 million will be
realized in fiscal 2014. However, Darden will incur $10 million
in expenses this fiscal to execute its plan.
Darden failed to maintain the momentum of the last quarter, in
which it recorded positive comps growth at all its restaurants.
Slower macroeconomic recovery, adverse impact of the Affordable
Care Act and faltering consumer confidence are expected to be
headwinds for fiscal 2014.
Although Darden undertook a set of initiatives to boost its
business, we remain skeptical until definitive signs of
improvement are noticed.
Darden currently carries a Zacks Rank #4 (Sell). Stocks in the
restaurant industry that are currently performing well include
CEC Entertainment Inc.
AFC Enterprises Inc.
Domino's Pizza Inc
) all carrying a Zacks Rank #2 (Buy).
AFC ENTERPRISES (AFCE): Free Stock Analysis
CEC ENTERTANMNT (CEC): Free Stock Analysis
DOMINOS PIZZA (DPZ): Free Stock Analysis
DARDEN RESTRNT (DRI): Free Stock Analysis
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