Darden Restaurants (DRI) likely to report higher profit and sales for Q1

The restaurant industry has hit the recovery path after suffering a prolonged slowdown, as the pandemic loosened its grip on the market and normalcy returned. However, companies face new challenges like elevated operating costs and labor shortages. Darden Restaurants, Inc. (NYSE: DRI), a leader in full-service dining, seems to have overcome the headwinds to some extent and delivered better-than-expected results in recent quarters.

The Orlando-headquartered company, which owns popular restaurant chains like LongHorn Steakhouse and Olive Garden, had a good start to fiscal 2024, after reporting positive results for the final months of the previous year. But investors were disappointed by the management’s guidance which fell short of expectations. Darden’s stock peaked in mid-July, before pulling back and hitting a four-month low.

The good thing about DRI is that the stock’s growth prospects are encouraging and the valuation is just right from the investment perspective. It is worth noting that the factors that caused the stock to withdraw from the recent highs are not pertaining to the company but are general issues like inflation and economic uncertainties. The management is planning to raise menu prices going forward to beat the rising costs and protect margins.  

Q1 Data on Tap

Darden is preparing to publish first-quarter results on September 21 before the market opens. It is widely estimated that earnings rose to $1.72 per share in the August quarter from $1.56 per share in the same period of 2023. The bullish outlook reflects a projected 10% growth in sales to $2.71 billion. It is in line with the positive forecast issued by Darden executives, projecting stable traffic growth for the year.

“Our restaurant teams continue to execute at a high level by remaining focused on our back-to-basics operating philosophy anchored in food, service, and atmosphere. Our brand’s ongoing efforts to drive execution through simplification enable our restaurant teams to create great guest experiences as evidenced by a record-level performance we saw from many of our brands on key holidays throughout the year. Nowhere is it more apparent than at Olive Garden, which achieved the highest sales day and sales week in their history during the week of Mother’s Day,” said the company’s CEO Rick Cardenas.

In the fourth quarter, total sales moved up 6% year-over-year to $2.77 billion and topped expectations. At $2.58 per share, earnings were up 15% from last year. Olive Garden sales, which account for nearly half of the total revenue, grew 6% and LongHorn Steakhouse sales moved up 10% year-over-year. Overall, LongHorn Steakhouse performed better than the former. For both businesses, comparable sales growth decelerated from the prior quarter. In the whole of 2023, the company opened nine new international franchise restaurants in six different countries, the highest ever in any fiscal year.

What Future Holds

For the full fiscal year, analysts’ consensus earnings estimate is $8.79 per share, which is above the mid-point of the company’s guidance range of $8.55-$8.85 per share. The management expects full-year sales to be between $11.5 billion and $11.6 billion and same-store sales growth of 2.5-3.5%.

Darden’s stock has been doing well lately and outperformed the market this week. It traded higher on Thursday morning and crossed the $150 mark.