Darden (DRI) earnings preview: Higher costs could hurt Q2 2020 results

Darden Restaurants Inc. (NYSE: DRI) is slated to report second quarter 2020 earnings results on Thursday, December 19, before the market opens. Analysts expect the company to report earnings of $1.07 per share on revenue of $2.06 billion.

Darden saw sales growth across all its divisions last quarter and this momentum is expected to continue in the second quarter driving overall topline results. While blended same-restaurant sales rose 0.9% last quarter, the results were mixed across the brands. Olive Garden and LongHorn Steakhouse posted same-restaurant sales increases while Cheddar’s Scratch Kitchen and Seasons 52 saw declines.

While Olive Garden has delivered comp increases, the drop in traffic at the division remains a concern. While Darden’s strategy of investing in remodels coupled with the Brand Renaissance plan and To Go business might help drive results, higher costs are likely to take a toll on margins.

In the first quarter of 2020, Darden beat earnings expectations while sales missed forecasts. Sales rose 3.5% to $2.13 billion while EPS improved by 4% to $1.37.

Also read: Darden Q1 2020 Earnings Conference Call Transcript

For fiscal year 2020, Darden expects total sales growth of 5.3% to 6.3%, including approx. 2% growth related to the 53^rd week. Same-restaurant sales growth is expected to be 1-2%. The company expects EPS from continuing operations to be $6.30-6.45. Darden expects approx. 50 gross and 44 net new restaurant openings in the year.

Shares of Darden gained 15% year-to-date and 2% over the past one month. The majority of analysts have rated the stock as Buy and it has an average price target of $130.80.

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