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Darden (DRI) Stock Up on Q1 Earnings Beat & Upbeat View

Darden Restaurants, Inc. DRI reported impressive first-quarter fiscal 2022 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The bottom line beat the consensus mark for the 11th straight quarter and the top line outpaced the same for the third consecutive quarter. Moreover, the metrics increased on a year-over-year basis. The company also raised its 2022 outlook. Following the robust results and an upbeat view, the company’s shares moved up 3.8% in pre-market trading session.

Earnings & Revenues

During the fiscal first quarter, the company reported adjusted earnings of $1.76 per share, beating the Zacks Consensus Estimate for earnings of $1.63 by 8%. In the prior-year quarter, the company had reported adjusted earnings per share (EPS) of 56 cents.

Total sales during the quarter came in at $ 2,306 million, beating the consensus mark of $2,238 million by 3%. Moreover, sales increased 51% from the prior-year quarter’s level on solid blended same-restaurant sales of 47.5%. This along with the opening of 34 net new restaurants added to the positives.

Darden Restaurants, Inc. Price, Consensus and EPS Surprise

 

Darden Restaurants, Inc. price-consensus-eps-surprise-chart | Darden Restaurants, Inc. Quote

 

Sales by Segments

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

During the fiscal first quarter, sales at Olive Garden increased 38.3% year over year to $1,090.4 million. Comps in the segment rose 37.1% year over year compared with 61.9% growth reported in the previous quarter.

Sales at Fine Dining increased 104.4% year over year to $168.8 million. Comps in the segment increased 84.6% year over year compared with 143.6% growth reported in the previous quarter.

Sales at Other Business increased 71.4% year over year to $479.7 million. Moreover, comps in the Other Business increased 65.8% year over year compared with 160.7% growth reported in the previous quarter.

At LongHorn Steakhouse, sales were up 50.5% year over year to $567.1 million. Comps in the segment surged 47% year over year compared with 107.5% growth reported in the previous quarter.

Operating Highlights & Net Income

In the fiscal first quarter, total operating costs and expenses increased 37.7% year over year to $2,025.2 million. The upside was primarily driven by a rise in food and beverage costs, restaurant expenses and labor costs.

Balance Sheet

As of Aug 29, 2021, cash and cash equivalents came in at $947.8 million compared with $1,214.7 million as of May 30, 2021.

Inventories during the fiscal first quarter came in at $210.9 million compared with $190.8 in the previous quarter. Long-term debt as of Aug 29, 2021, was $936.7 million compared with $929.8 million as of May 30, 2021.

During the fiscal first quarter, Darden’s board of director repurchased approximately 1.3 million shares of its common stock worth approximately $186 million. At the end of first-quarter fiscal 2021, the company had approximately $277 million remaining under the $500-MILLION repurchase authorization. Management sanctioned to repurchase an additional $750 million of its outstanding common stock, thereby bringing the total remaining repurchase authorization to approximately $1 billion.

Meanwhile, the company declared a quarterly cash dividend of $1.10 per share. The dividend will be payable on Nov 1, 2021, to shareholders of record as of Oct 8, 2021.

Updated Fiscal 2022 Outlook

For fiscal 2022, the company raised its sales expectations to approximately $9.4-$9.6 billion versus the previous forecast of approximately $9.2-$9.5 billion. The company expects total sales growth in the range of 7-9% from pre-COVID levels. Further, same-restaurant sales are expected to increase in the range of 27-30% on a year-over-year basis.

EBITDA for fiscal 2022 is anticipated in the range of $1.54-$1.60 billion compared with the previous projection of $1.50-$1.59 billion. EPS from continuing operations are anticipated in the band of $7.25-$7.60 compared with the previous guidance of $7.00-$7.50. Meanwhile, effective tax rate for fiscal 2022 is anticipated in the range of 13-14%.

The company expects to open 35-40 net new restaurants and projects total capital spending of $375-$425 million in fiscal 2022.

Zacks Rank & Key Picks

Darden currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Chipotle Mexican Grill, Inc. CMG, Jack In The Box Inc. JACK and The Wendys Company WEN, each currently carrying a Zacks Rank #2 (Buy).

Chipotle’s 2021 earnings are expected to surge 137.5%.

Jack in the Box has a trailing four-quarter earnings surprise of 26.4%, on average.

Wendys has a three-five-year EPS growth rate of 14%.


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