Darden Restaurants Inc.
) posted third-quarter fiscal 2014 results. Earnings and
same-restaurant sales were in-line with the numbers provided in
its preliminary results on Mar 3, 2014. The company reported
earnings from continuing operations of 82 cents per share, down
19.6% year over year from $1.02.
The downside reflects lower sales and higher direct costs due to
inclement weather and costs associated with its strategic action
plan announced in Dec 2013. However, earnings were in line with
the Zacks Consensus Estimate.
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 (either through spin-off or
sale of the segment) in Dec 2013. The company also intends to
lower unit expansion, which will automatically reduce capital
spending by at least $100 million on an annual basis.
Total revenue fell 1.1% year over year to $2.23 billion due to
sluggish same-restaurant sales, attributable to a severe winter
and difficult year-over-year comparisons. Revenues also fell shy
of the Zacks Consensus Estimate of $2.25 billion by 0.84%.
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 - declined 5.6% versus an
increase of 4.1% in the year ago quarter and 0.5% in the previous
Comps at LongHorn Steakhouse increased 0.3% versus 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 declined 5.4%, worse
than a decline of 4.1% in the year-ago quarter and 0.6% in the
prior quarter. Red Lobster comps declined 8.8% compared with a
decline of 6.6% in fiscal third quarter 2013 and 4.5% in the
Following positive comps in the past two fiscal quarters,
Specialty Restaurant Group comps declined approximately 0.7% in
the quarter. The Group had posted comps growth of 2.3% in the
year-ago quarter and 4.1% in the prior quarter.
Sales at Olive Garden declined 3.4% year over year to $929.0
million in fiscal third quarter 2014 due to a decline in comps,
partially offset by revenues generated from 18 net new
Sales at Red Lobster decreased 8.7% to $611.0 million due to a
decline in U.S. comps, partially offset by the inclusion of one
At LongHorn Steakhouse, sales were up 9.1% to $363.0 million. As
many as 37 net new restaurants and positive comps contributed to
Sales at The Specialty Restaurant Group increased 11.6% to $320.0
million, thanks to comps growth of 0.1% at The Capital Grille and
0.8% at Bahama Breeze, partially offset by comps decline of 2.9%
at Eddie V's, 0.1% at Yard House and 4.4% at Seasons 52. The
upside could be attributed to higher revenues from 5 new The
Capital Grille restaurants, 4 Bahama Breeze restaurants, 10
Seasons 52 restaurants, 2 Eddie V's and 5 Yard House restaurants.
Total costs and expenses during the reported quarter were $2.1
billion, up 1.3% year over year mainly due to a 0.5% increase in
cost of sales and a 4.8% rise in selling, general and
As of Feb 23, 2014, cash and cash equivalents were $127.0
million, up from $84.6 million as of Nov 24, 2013. Long-term
debt, less current portion was $2.5 million, approximately flat
as of Nov 24, 2013.
Guidance for 2014 Reiterated
The company retained its outlook for fiscal 2014, 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 and will not worsen the situation any further.
For fiscal 2014, the company continues to anticipate a year over
year decline of 15.0% to 20.0% in earnings per share.
The company expects Red Lobster and Olive Garden comps to decline
in the range of 5.5% to 6.5% and 2.5% to 3.5%, respectively.
Comps at LongHorn Steakhouse are however expected to increase
2.0% to 3.0%.
Darden posted modest third quarter fiscal 2014 results. Though
the bottom line matched the Zacks Consensus Estimate, the top
line fell short of our expectations due to lower comps. The
company is trying to offset the impact of the challenging
environment with a set of initiatives undertaken to boost its
business. However, these initiatives will take time to reap
benefits. In fact, the company expects its strategic action plan
to generate savings of at least $60 million annually beginning
fiscal year 2015.
Meanwhile, slower macroeconomic recovery, adverse impact of
the Affordable Care Act and faltering consumer confidence are
expected to be headwinds for Darden in fiscal 2014.
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Darden currently has a Zacks Rank #3 (Hold). Some better-ranked
stocks in the same industry include
Carrols Restaurant Group, Inc.
Dunkin' Brands Group, Inc.
Buffalo Wild Wings Inc.
). All these stocks hold a Zacks Rank #2 (Buy).