On June 22,
Darden Restaurants Inc.
(
DRI
) reported fourth quarter 2012 earnings of $1.15 per share, in line
with the Zacks Consensus Estimate but higher than the year-ago
earnings of $1.00 per share. Below we will cover the results of the
recent earnings announcement, subsequent analyst estimate revisions
and the Zacks ratings for the short-term and long-term outlook for
the stock.
Earnings Report Highlights
Total revenue increased 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%. An earlier Lenten season and Easter holiday this year
hurt the combined result in the reported quarter.
Earnings Estimate Revisions - Overview
Following Darden Restaurant's fourth quarter results, estimate
revision trend depicted a clear negative bias for the upcoming
quarters. Let's dig into the earnings estimate details.
Agreement of Estimate Revisions
Over the last 7 days, 3 of the 23 analysts covering the stock
raised their estimates for first quarter 2013 while 8 analysts
moved downwards. The tone was more depressing for fiscal 2013, with
only one analyst increasing his or her estimate and 20 analysts
revising downward. For fiscal 2014, 10 out of 20 analysts slashed
their estimates while none moved in the opposite direction.
The analysts, by and large, are mainly disappointed with the
slowdown in comps in two of Darden's core concepts, Olive Garden
and Red Lobster as well as the failure of the promotional offers in
the backdrop of a challenging macro environment. Additionally,
sluggish same-restaurant traffic count and management's
conservative guidance were also concerning.
Magnitude of Estimate Revisions
The magnitude of revision for Darden has also been quite
significant over the last 7 days. For the upcoming quarter,
estimate dropped by 3 cents to 85 cents while for fiscal 2013, it
took a deeper plunge of 11 cents to $3.93.
Our Recommendation
Decline in same-restaurant sales, anemic performance by core
concepts that almost approached saturation, stiff competition, and
high discount rates imposed on menu prices to fight the intricate
economic conditions are among the host of factors that could pose a
threat to Darden Restaurants' growth.
In fact, Darden expects the macroeconomic tension and faltering
consumer confidence to continue bothering in 2013, which makes the
Orlando, Florida-based company guide softly. Although Darden
resorted to several turnaround initiatives and value messaging to
beat the recent woes at Olive Garden, analysts have yet to see any
sustained improvement.
However, on a positive note, the performance of its specialty
restaurant and LongHorn Steakhouse were saviors in the quarter. The
flaring cost environment is also cooling off, and will in turn help
Darden to score better in fiscal 2013.
Darden, which competes with
Kona Grill Inc.
(
KONA
) and
Brinker International Inc.
(
EAT
), currently retains a Zacks #3 Rank that translates into a
short-term Hold rating.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These "Earnings Estimate Scorecard" articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at
http://www.zacks.com/education/
DARDEN RESTRNT (DRI): Free Stock Analysis
Report
BRINKER INTL (EAT): Free Stock Analysis Report
KONA GRILL INC (KONA): Free Stock Analysis
Report
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