On May 1, 2014, we issued an updated research report on
Darden Restaurants, Inc.
On Mar 21, this casual dining restaurant reported soft fiscal
third quarter results with earnings matching the Zacks Consensus
Estimate and revenues falling short of the same. However, the
company retained its outlook for 2014.
Darden's adjusted earnings of 82 cents per share declined 19.6%
year over year owing to lower sales and higher direct costs due
to inclement weather and costs associated with its strategic
action plan announced in Dec 2013.
We are encouraged by Darden's comprehensive restructuring
plan, which calls for a possible spin-off of its lackluster Red
Lobster segment. The plan also includes lesser number of unit
openings and some other cost saving initiatives. The company
intends to use the surplus cash for share repurchases and
Total revenue fell 1.1% year over year to $2.23 billion due to
sluggish same-restaurant sales (comps). Comps were weak during
the quarter due to inclement weather that hurt customer visits
and the adverse effect of a shift in the Thanksgiving holiday
Estimates for this Zacks Rank #3 (Hold) company mostly moved
downwards in response to the sluggish quarterly results. The
Zacks Consensus Estimate for fiscal 2014 and 2015 decreased 0.4%
each over the last 30 days.
Like other restaurant chains, Darden is also facing commodity
inflation headwinds. The company expects commodity inflation in
the range of 2.5% to 3.0% in fiscal 2014 due to higher shrimp and
Despite sluggish results, the company retained its outlook for
2014 hoping that the impact of inclement weather and other
challenges would subside in the third quarter. Moreover, it
expects its cost management initiatives to improve profits.
Also, the company is implementing a set of initiatives at
Olive Garden under its brand renaissance plan. These initiatives
include simplifying kitchen systems, developing new core menu
items and investing in the Tuscan farmhouse remodel program. We
expect the revamped restaurants to contribute to the sales
growth, going forward.
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Darden Restaurants presently has a Zacks Rank #3 (Hold). Some
better-ranked stocks in the restaurant industry include
Arcos Dorados Holdings Inc. Cla
Buffalo Wild Wings Inc.
Burger King Worldwide, Inc.
). All these stocks carry a Zacks Rank #2 (Buy).