A month has gone by since the last earnings report for Darden Restaurants, Inc. DRI . Shares have added about 4.4% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is DRI due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Darden's Q4 Earnings & Revenues Surpass Estimates
Darden reported better-than-expected results in the fourth quarter of fiscal 2018. Adjusted earnings of $1.39 per share beat the consensus estimate of $1.35 by 3%. Earnings increased 17.8% year over year on the back of higher revenues. Notably, the quarter marked the 15th consecutive earnings beat for the company. Darden's impressive earnings also resulted from the company's relentless efforts in improving the basic operating factors of the business - food, service and atmosphere.
Total revenues of $2.13 billion slightly beat the consensus mark of $2.12 billion. Revenues also increased 10.3% from the prior-year quarter. The upside was driven by sales growth across every brand.
Revenues by Segments
Darden reports business under four segments: Olive Garden, LongHorn Steakhouse, Fine Dining that includes The Capital Grille and Eddie V's, and Other Business.
In the reported quarter, the company's legacy brands posted blended comps growth of 2.2%. In the previous quarter, comps had increased 2%.
Sales at Olive Garden were up 4% year over year to $1.06 billion. Comps grew 2.4% at the segment, slightly higher than the prior-quarter's comps growth of 2.2%. Traffic rose 0.1%, along with 1.7% improvement in pricing and 0.6% growth in menu mix.
Sales at Fine Dining increased 5.9% to $147.3 million. Comps at The Capital Grille rose 2.8%, flat with third-quarter comps growth. Eddie V's also posted comps growth of 4.1%, higher than 2.7% improvement recorded in the last reported quarter.
Revenues from Other Business jumped 38.9% year over year to $460.7 million. However, comps at Seasons 52 fell 0.6% in the quarter compared with the third-quarter comps decline of 0.2%. Comps at Yard House inched up 1.1% compared with 1.9% increase in the last reported quarter. Meanwhile, comps grew 1.1% at Bahama Breeze, higher than comps growth of 0.2% in the preceding quarter.
At LongHorn Steakhouse , sales rose 4.9% to $458.2 million. Comps at LongHorn Steakhouse increased 2.4%, up from third-quarter comps growth of 2%. Traffic increased 0.2%, and pricing and menu mix grew 0.8% and 1.4%, respectively.
In the reported quarter, comps at Cheddar's declined 4.7%, comparing unfavorably with the prior-quarter's decline of 2.2%.
Operating Highlights & Net Income
Total operating costs and expenses increased 7.9% year over year in the fourth quarter to $1.9 billion. This was led by an overall increase in food and beverage costs, restaurant labor and expenses, and marketing costs. As a result, operating margin in the quarter contracted 198 basis points (bps) on a year-over-year basis. Net earnings in the fourth quarter were $174.5 million, recording 41% growth from the year-ago level. Balance Sheet
Cash and cash equivalents as of May 27, 2018 was $146.9 million, down from $233.1 million on May 28, 2018.
Inventories totaled $205.3 million at the end of the reported quarter. Goodwill, as a percentage of total assets, was 21.6% in the quarter.
Long-term debt as of May 27, 2018 was $926.5 million, down from $936.6 million on May 28, 2018.
In fiscal 2018, the company generated cash flow of roughly $1 billion from operating activities. It spent about $313.5 million on dividends in the same time period.
During the fourth quarter, the company repurchased approximately 0.3 million shares of its common stock for a total cost of approximately $27 million. Management authorized a new share-repurchase program, under which the company may repurchase up to $500 million of its outstanding common stock. The program does not have expiration and replaces the previously existing share-repurchase authorization.
On Jun 20, 2018, the company's board of directors hiked quarterly dividend by 19% to 75 cents per common share. The quarterly dividend is payable on Aug 1, 2018 to its shareholders of record as of Jul 10, 2018.
Total revenues in the fiscal increased 12.7% year over year to $8.08 billion. The company's legacy brand posted blended comps growth of 2.3% whereas comps at Cheddar's declined 2%.
Fiscal 2018 adjusted earnings per share came in at $4.81, up 19.7% from fiscal 2017.
For fiscal 2019, the company expects total revenues to grow in the range of 4-5%. Comps are projected to increase 1-2%. Darden plans to open 45-50 new restaurants. With an anticipated inflation rate of 2% and effective tax rate in the band of 11-12%, Darden diluted earnings per share to be in the range of $5.40-$5.56.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions higher for the current quarter compared to five lower.
Darden Restaurants, Inc. Price and Consensus
Darden Restaurants, Inc. Price and Consensus | Darden Restaurants, Inc. Quote
At this time, DRI has a strong Growth Score of A, though it is lagging a bit on the momentum front with a B. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregte VGM score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for momentum and to a lesser degree value.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, DRI has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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