Darden Restaurants Inc.
(
DRI
) posted second-quarter fiscal 2013 earnings from continuing
operation of 26 cents per share, in line with the Zacks Consensus
Estimate but lower than the year-ago earnings of 41 cents per
share. Costs associated with the acquisition of Yard House USA
Inc. and the impact of Superstorm Sandy affected the
second-quarter's earnings per share by 5 cents and a penny,
respectively.
Total revenue grew 7.0% from the prior-year quarter to $1,960.0
million, which surpassed the Zacks Consensus Estimate of $1,954.0
million. Combined same-store sales (comps) for the company's
three core brands -- Olive Garden, Red Lobster and LongHorn
Steakhouse -- dropped 2.7%, while the same for the company's
Specialty Restaurant Group nudged up 0.7%. The failure of
promotional offers amid a value-sensitive environment primarily
affected Darden in the second quarter of 2012.
Operating Highlights
By restaurant concepts, Olive Garden's sales grew 1.5% year over
year to $849.0 million in the second quarter, driven by
contributions from 46 net new restaurants offset somewhat by a
3.2% downside in comps.
Sales at Red Lobster decreased 2.1% to $590.0 million as a 2.7%
decrease in comps weakened the concept's performance. However,
revenues from 5 net new restaurants provided the partial offset.
At LongHorn Steakhouse, sales were up 7.8% at $275.0 million as
32 net new restaurants contributed to the upside. Comps fell 0.8%
in the quarter.
Sales at The Specialty Restaurant Group jumped 76.4% to $241.0
million aided by the addition of 40 Yard House restaurants, a new
opening of Yard House unit in October, 3 net new units at The
Capital Grille, 5 net new units at Bahama Breeze and 4 net new
units at Seasons 52.
While a rise in comps of 0.8% at The Capital Grille and 1.9% at
Bahama Breeze helped drive growth at Specialty Restaurant Group,
a decline of 1.0% proved to be a drag on the momentum.
Liquidity
Darden ended the quarter with cash and cash equivalents of $61.4
million and long-term debt (less current portion) of $2,503.5
million.
Guidance
Orlando, Florida-based Darden foresees its sales growth for
fiscal 2013 in the range of 7.5%-8.5% based on a negative 1.0% to
flat blended same-store sales growth estimate for its three core
brands. The company expects to open 100 units in fiscal 2013,
excluding Yard House.
Darden also expects to earn $3.29-$3.49 per share from
continuing operations in fiscal 2013, which includes
approximately 8-10 cents of transaction and closing costs
associated with the purchase of Yard House USA Inc.
Our Take
Slowdown in comps in three of Darden's concepts was the key
takeaway from Darden's second quarter earnings results. Moreover,
after promising well in the last quarter, Olive Garden
underperformed yet again. Red Lobster, too, put up a dismal
performance in the quarter.
Along with Olive Garden and Red Lobster, LongHorn Steakhouse,
which was a better-placed brand until recently, also delivered
negative comps in each month of the quarter confirming the
wavering consumer confidence in the U.S.
In order to improve the impact of its unsuccessful promotions,
management is bringing about changes in dishes and services.
Furthermore, management remains keen on the modification of its
promotional calendar and deployment of brand-appropriate
affordability to be more consumer-friendly. However, its
sustained effect is yet to be seen.
Darden, which competes with
Kona Grill Inc.
(
KONA
) and
Brinker International Inc.
(
EAT
), currently retains a Zacks #4 Rank, which translates into a
short-term Sell rating. We are also maintaining our long-term
Underperform recommendation on the stock.
DARDEN RESTRNT (DRI): Free Stock Analysis
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