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Cost Savings, Sales Growth to Aid Darden (DRI) in Q4 Earnings

Darden Restaurants, Inc. DRI is set to report fourth-quarter fiscal 2019 results on Jun 20, before the opening bell.

In the last reported quarter, the company posted impressive earnings and revenues, resulting from its relentless efforts in improving the basic operating factors of business — food, service and atmosphere. Further, revenue growth across every brand aided top- and bottom-line growth.

We believe that synergies from the Cheddar’s acquisition and various sales-boosting initiatives across brands are expected to benefit Darden’s fourth-quarter fiscal 2019 revenues. Moreover, efficient cost-containment efforts are likely to improve the company’s margins and the bottom line.

Backed by better-than-expected earnings in 18 out of trailing 19 quarters, Darden’s shares have gained 26.9% in the past year, outperforming the industry’s rally of 23.8%. Let’s find out how its to-be-reported quarter’s results will turn out.

 

Acquisition & Sales-Building Efforts to Boost Revenues

Darden’s revenues are expected to increase year over year in the to-be-reported quarter, driven by various initiatives that include simplifying kitchen systems, operational excellence to enhance guest experience, menu innovation and other technology-driven moves. The Zacks Consensus Estimate for the quarter’s net sales is pegged at $2.24 billion, reflecting 5% year-over-year growth. In the first three quarters of fiscal 2019, Darden witnessed year-over-year sales growth of 5.6%.

Olive Garden is likely to gain from the Brand Renaissance plan and the To Go business, which offers online ordering at selected locations. The brand is particularly focusing on remodeling and bar refreshing. The revamped restaurants are already generating high same-restaurant sales and returns. In fact, supported by these initiatives, Olive Garden posted the 18thconsecutive quarter of positive comps in third-quarter fiscal 2019.

Expecting this forward trend to continue, the consensus estimate for comps growth is pegged at 3.5% in the to-be-reported quarter, comparing favorably with the year-ago quarter’s comps growth of 4.3%.

Comps at LongHorn are expected to grow year over year, owing to culinary innovation in the segment. Darden is also working on a marketing strategy to improve execution, customer relationship management and digital advertising. Further, it continues to focus on strengthening the in-restaurant execution through investments in quality.

Owing to these efforts, segmental comps have been growing since the past 23 consecutive quarters and the trend is likely to continue in the to-be-reported quarter. The consensus estimate for the segment’s fourth-quarter comps is projected to grow 3%, whereas it witnessed 2.4% comps growth in the year-ago quarter.

Meanwhile, the acquisition of Cheddar’s seems to be a great fit for the company’s portfolio as it not only complements its existing brands but is also expected to aid in attracting more customers, given its extensive appeal. Synergies from the buyout of Cheddar’s are expected to continue favoring the segment’s revenues in the to-be-reported quarter.

Cost-Saving Efforts to Favor Bottom Line

Darden has an aggressive cost-management plan, under which it significantly cut operating costs.  In fiscal 2018, cost savings resulted in synergies of about $10 million.  Moreover, the company plans to reinvest any incremental savings into pricing and long-term growth drivers for the business, particularly emphasizing on enhancing quality to drive market share gains.

Darden’s cost-cutting initiative is likely to favor earnings growth in the to-be-reported quarter. The consensus estimate for fiscal fourth-quarter earnings is pegged at $1.73, suggesting 24.5% growth from the year-ago reported figure.

Our Quantitative Model Suggests a Beat

Per our quantitative model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), along with a positive Earnings ESP, has a fair chance of beating estimates. Meanwhile, stocks with a Zacks Rank #4 or 5 (Sell-rated) are best avoided.

Darden currently has a Zacks Rank #3 and an Earnings ESP of +1.16%, a combination that increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Darden Restaurants, Inc. Price and EPS Surprise

 

Darden Restaurants, Inc. Price and EPS Surprise

Darden Restaurants, Inc. price-eps-surprise | Darden Restaurants, Inc. Quote

Other Stocks to Consider

Here are some other companies in the Retail-Wholesale sector that per our model possess the right combination of elements to post an earnings beat in the to-be-reported quarter:

Boot Barn BOOT has an Earnings ESP of +0.33% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Walmart WMT currently has an Earnings ESP of +1.24% and a Zacks Rank #2.

TripAdvisor TRIP presently has an Earnings ESP of +6.89% and a Zacks Rank #3.

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