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Darden Restaurants (DRI) Down 0.6% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Darden Restaurants (DRI). Shares have lost about 0.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Darden Restaurants due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Darden Q3 Earnings And Revenues Beat Estimates

Darden reported third-quarter fiscal 2021 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. The bottom line beat the consensus mark for the ninth straight quarter, while the top line outpaced the same after missing in the preceding three quarters. However, both the metrics declined on a year-over-year basis.

During the fiscal third quarter, the company reported adjusted earnings of 98 cents per share, beating the Zacks Consensus Estimate for earnings of 72 cents. In the prior-year quarter, the company had reported adjusted earnings per share of $1.90.

Total sales during the quarter amounted to $1,733 million, beating the consensus mark of $1,625 million. However, sales declined 26.1% from the prior-year quarter on account of negative blended same-restaurant sales of 26.7%. The decline was partially mitigated by the opening of 10 net new restaurants.

Sales by Segments

Darden reports business under four segments — Olive Garden, LongHorn Steakhouse, Fine Dining that includes The Capital Grille and Eddie V's, and Other Business.

Sales at Olive Garden decreased 25.4% year over year to $872 million. Comps slumped 25.8% at the segment compared with the prior-quarter’s comp decline of 19.9%.

Sales at Fine Dining plunged 44.6% to $104.4 million. Comps fell 45.2% at the segment, compared with a decline of 31% in second-quarter fiscal 2021.

Sales at Other Business decreased 36.8% year over year to $302.3 million. Moreover, comps Other Business fell 36.9%, compared with a decline of 28.6% in the prior quarter.

At LongHorn Steakhouse, sales were down 11% year over year to $454.3 million. Comps at the segment decreased 12.6%, compared with comps decline of 11.1% in the previous quarter.

Other Business Updates

For the week ended Feb 28, Mar 7, Mar 14 and Mar 21, comps at Darden declined 15.9%, 13.9%, 11.1% and up 5.4%, respectively.

Meanwhile, comps at Olive Garden for the week ended Feb 28, Mar 7, Mar 14 and Mar 21 were down 17.4%, 15.3%, 11.6% and up 5.7%, respectively. Moreover, comps at LongHorn Steakhouse were down 3.4% and up 0.3%, 18.5%, 3.8% and 23.2%, for the week ended Feb 28, Mar 7, Mar 14 and Mar 21, respectively.

Operating Highlights & Net Income

In the fiscal third quarter, total operating costs and expenses decreased 23.4% year over year to $1,535.8 million. The decline was due to an overall decrease in food and beverage costs, restaurant expenses, and labor costs.

Balance Sheet

As of Feb 28, 2021, cash and cash equivalents were $993.9 million compared with $763.3 million as of May 31, 2020.

Inventories during the fiscal third quarter totaled $188.2 million. Long-term debt as of Feb 28, 2020, was $929.7 million, up from $928.8 million as of May 31, 2020.

The company declared a quarterly cash dividend of 88 cents per share, payable on May 3, 2021, to shareholders of record as of Apr 9, 2021. Moreover, Darden’s board of director said that the company may repurchase up to $500 million of its outstanding common stock.

Q4 Guidance

The company expects total sales of nearly $2.1 billion. EBITDA is anticipated in the range of $345 million to $360 million. Earnings per share from continuing operations are anticipated to be $1.60-$1.70. The Zacks Consensus Estimate for the fourth quarter is currently pegged at $1.27.

The company expects to open 33 net new restaurants and projects total capital spending in the band of $285 million to $295 million in fiscal 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 34.85% due to these changes.

VGM Scores

Currently, Darden Restaurants has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Darden Restaurants has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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