Darden Restaurants Inc. (DRI) is set to report its earnings for the second quarter on Tuesday before the market opens. The restaurant chain’s results could be benefited by an increase in same-restaurant sales and higher consumers traffic as well as new restaurants growth and pricing.
Analysts, on average, expect the company to post earnings of $0.91 per share on revenue of $1.98 billion for the second quarter. In comparison, during the previous year quarter, Darden reported a profit of $0.73 per share on revenue of $1.88 billion. Majority of the analysts recommended a “hold” rating on the stock with an average price target of $123.81.
The company’s results are expected to be benefited by an increase in footfall as consumers turned health conscious by shifting from fast-food chains to restaurants. The top line could be advanced by an increase in menu-mix and pricing as well as same-restaurant sales growth and new restaurants growth.
For the recent first-quarter results, Darden posted a 39% jump in earnings on higher sales and a rise in same-restaurant sales from its legacy brands. Helped by a 6.4% sales growth, Darden was able to manage the 6% rise in operating costs and expenses to a large extent. Darden posted net sales increases across all its segments during the quarter.
Same-restaurant sales increased across most of its brands except for Cheddar’s Scratch Kitchen and Seasons 52 in the first quarter of fiscal 2019. The highest growth was in Olive Garden where same-restaurant sales rose 5.3%.
For the fiscal year 2019, the company had expected sales growth of 5% to 5.5% and EPS from continuing operations of $5.52 to $5.65. Same-restaurant sales have been predicted in the 2% to 2.5% growth range and the company is likely to open 45 to 50 restaurants during the full year.
Meanwhile, according to a survey data from Tdn2K, many brands have been lifting their menu prices throughout the year in order to offset a decline in traffic. Hurricanes have been cited as the main reason behind the decline in traffic. Consumers have been surviving the menu price increase by the strong consumer confidence plus raising wages that may motivate them to spend more in dining out.
Shares of Darden ended Friday’s regular session down 0.98% at $103.20 on the NYSE. The stock has risen over 8% in the year so far while it has fallen over 12% in the past three months.
A report by the National Automobile Dealers Association (NADA) has forecasted that the sales of new cars and light trucks in 2019 will be 16.8 million units. This would be down about 1.1% from the estimated 17 million units for 2018.
NADA anticipates new vehicle sales to reach 17 million units in 2018, marking the fourth consecutive year of auto sales of over 17 million units in the US. The major portion of these sales comprise crossovers, SUVs and pickups.
The report stated that light trucks are on track to account for around 70% of sales in 2018, while cars will account for about 30%. This compares to a sales mix of 48% light trucks and 52% cars a decade ago. One of the main factors for this increase is said to be lower gas prices and the fuel efficiency of crossover vehicles. Gas prices are expected to remain low in 2019.
Manufacturer-backed certified preowned (CPO) sales grew 2.2% through November 2018, which is a positive sign for new-car dealerships and consumers. However, there is a chance that higher prices could push customers out of the new-vehicle market.
Higher interest rates for new vehicle funding could also pressure customers. Average interest rates have increased meaningfully so far this year from 2017, leading to an increase in the cost of borrowing. Interest rates are expected to increase in 2019. All these factors could lead to more consumers buying used cars.
NADA does not expect the macroeconomic conditions seen in 2018 to repeat in 2019 which is also a reason for the projected decrease in new vehicle sales. The report said that in general, new car dealers were optimistic about 2019 as well as new technologies like electric vehicles.
Leading automobile companies in the US like Ford Motor Company (F) and General Motors (GM) have been making changes to their product lines based on the growing preferences for SUVs and crossovers.
In November, Ford’s total vehicle sales in the US dropped 6.9% from the same period last year. While the sales for trucks and SUVs dropped 2.3% and 4.9% respectively, the sales for cars fell 19.5%. A stronger mix of trucks and SUVs increased the company’s average transaction pricing to a record $37,000.
In October, General Motors reported a double-digit growth in large SUVs during the third quarter of 2018. Strong sales of trucks, crossovers and SUVs drove an increase in average transaction prices to a record $35,974. Last month, GM said it was cutting the production of passenger cars and closing some of its facilities that produce these cars.
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