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After mixed Q4, Darden Restaurants stays focused on profitable sales growth

Darden Restaurants, Inc. (NYSE: DRI), which owns popular restaurant brands Olive Garden and LongHorn Steakhouse, has reported stronger-than-expected fourth-quarter results, sending the stock higher soon after the announcement. Contributions from a new acquisition and recently opened restaurants helped the company overcome challenges that emerged in the back half of the year.   

The Orlando-headquartered multi-brand restaurant chain’s stock has been in a downward spiral after hitting an all-time high in early March, and the price mostly stayed below the 52-week average since then. However, DRI is up an impressive 31% from five years ago, underscoring the strength of Darden’s business model marked by consistent revenue and profit growth.

The company has hiked its dividend regularly, with the latest being a 6.9% increase in Q4 to $1.40 per share, and currently offers an above-average yield of 3.8%. Experts are bullish on the prospects of the stock, which is expected to regain momentum and grow in double digits this year.

In Expansion Mode

After opening 53 new restaurants in 24 states and acquiring and completing the integration of Ruth’s Chris Steakhouse in fiscal 2024, Darden plans to open 45-50 new units in the current fiscal year. The aggressive expansion strategy should enable the company to navigate headwinds like discounting-and-marketing pressure and cautious consumer spending. The Darden leadership remains committed to delivering profitable sales growth, rather than boosting revenue for the sake of it. The focus is on traffic growth and effective cost management.

From Darden Restaurants’ Q4 2024 earnings call:

“We successfully navigated a challenging environment, and our proven strategy, combined with the strength of our business, ensures we are well positioned regardless of the operating environment. As we begin fiscal 2025, we remain focused on managing our business for the long term by executing our strategy that drives long — drives growth and long-term shareholder value. We have also taken steps to further position Darden and our brands for future growth and success through several leadership changes. We are fortunate to have a deep bench of talent and these changes are designed to allow two of our most seasoned presidents to devote more time to developing our newest brand presence.”

Earnings Beat

Adjusted earnings from continuing operations increased 2.7% annually to $2.65 per share in the May quarter, reflecting a 7% growth in sales to $2.95 billion. Unadjusted net income was $308.1 million or $2.57 per share, vs. $315.1 million or $2.58 per share last year. Total same-restaurant sales were flat year-over-year as a 4% sales growth in LongHorn Steakhouse was offset by declines in other segments – Fine Dining and Olive Garden sales dropped 2.6% and 1.5% respectively.

The results beat analysts’ estimates, after missing in the previous quarter. For fiscal 2025, the management projects sales in the range of $11.8 billion to 11.9 billion, with an estimated 1-2% growth in same-restaurant sales. Full-year profit from continuing operations, on a per-share basis, is expected to be between $9.40 and 9.60. The company ended the fiscal year with an operating cash flow of $1.62 billion.

The stock maintained its post-earnings momentum in early trading on Friday but changed course in the afternoon and traded lower. DRI has lost about 7% so far this year.

Categories: Analysis Consumer
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