Earnings Preview: Darden - Analyst Blog

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Casual dining restaurant operator, Darden Restaurants Inc. ( DRI ) is slated to release its first-quarter fiscal 2013 results on September 21. The current Zacks Consensus Estimate for the first quarter is 84 cents per share on revenues of $2,036 million. 

The current Zacks Consensus Estimate for the first quarter reflects a year-over-year growth of 7.10%.

Earnings Surprise

Over the trailing four quarters, Darden's earnings surprise was in the range of negative 2.38% to positive 0.81%, with the average being negative 0.79%. This implies that the company has missed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Previous Quarter Recap

Orlando, Florida-based Darden posted fourth quarter fiscal 2012 earnings from continuing operation of $1.15 per share, in line with the Zacks Consensus Estimate but above the year-ago earnings of $1.00 per share.

Total revenue grew 3.8% from the prior-year quarter to $2,065.6 million but fell short of the Zacks Consensus Estimate of $2,107.0 million. Combined same-store sales for the company's three core brands, Olive Garden, Red Lobster and LongHorn Steakhouse, dropped 1.9%, partially compensated by a 2.7% growth in the company's Specialty Restaurant Group.

An earlier Lenten season and Easter holiday this year hurt the combined results in the fourth quarter for Olive Garden, Red Lobster and LongHorn Steakhouse by 40 basis points (bps), out of which Red Lobster suffered the most.

Guidance

Darden continues to expect same-store sales growth for its three core brands to be in the range of 1%-2% as well as new restaurant openings to be in between 100 to 110 for fiscal 2013.

However for fiscal 2013, after considering the Yard House acquisition impact, Darden boosted total sales growth guidance in the range of 9%-10% from the previous outlook of 6%-7%, but trimmed its earnings per share outlook to the range of 5% to 9% down from the previous range of 8-12%.

Zacks Consensus

The analysts covered by Zacks expect Darden to post earnings of 84 cents per share for the first quarter of fiscal 2013, higher than the prior-year earnings of 78 cents. Currently, the Zacks Consensus Estimate ranges between 78 cents to 91 cents a share.

Earnings Estimate Revisions - Overview

Ahead of the earnings release, we have noticed a slight negative sentiment prevailing around the stock. 

Agreement of Estimate Revisions

In the last 30 days, two out of the 26 analysts covering the stock increased their estimates for the first quarter and three reduced the same. For both fiscal 2013 and 2014, out of 21 analysts, one analyst raised the estimate and two moved downwards.

In the last 7 days, two analysts lowered the estimates for the upcoming quarter, but none moved in the opposite direction. The analysts have slashed the estimates considering weaker blended same-store sales for the first quarter of 2013, particularly driven by negative comps at Red Lobster. For fiscal 2013, one analyst slashed the estimate and for fiscal 2014, two analysts curtailed the estimate, but none raised the same.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the upcoming quarter inched up by a penny in the last 30 days, to 84 cents. For both fiscal 2013 and 2014, the earnings estimates for the same period remain unchanged at $3.84 and $4.40, respectively. 

Maintain Neutral Rating

We have a long-term Neutral recommendation on Darden as it boasts of a unique proposition driven by strong value proposition, menu improvements, excellent unit-level execution with differentiated brands and a balanced portfolio, which provides stronger diversification in sales and cost synergies. Moreover, the dilutive effect of the latest Yard House acquisition is reflected at the current level. Darden should now reap the benefits from this high-potential acquisition. Further, favorable food and energy costs will also support Darden in 2013.

However, Darden has been facing challenges in recent times. The problems regarding one of its core brands - Olive Garden, stiff competition resulting in higher discounting rates, failure of some promotional offers, probability of higher 2013 SG&A expenses, slash in guidance as well as a cautious consumer spending trends are the causes of concern.

Darden, which competes with Panera Bread Co. ( PNRA ), currently retains a Zacks #3 Rank (short-term Hold rating).


 
DARDEN RESTRNT (DRI): Free Stock Analysis Report
 
PANERA BREAD CO (PNRA): 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 , Earnings , Stocks

Referenced Stocks: DRI , PNRA

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