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Why Is Darden (DRI) Up 3.6% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Darden Restaurants, Inc. (DRI - Free Report) . Shares have added about 3.6% in the past month, outperforming the market.

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

Darden Tops Q3 Earnings, Lifts View for FY17, Stock Up

Darden reported better-than-expected third-quarter fiscal 2017 results with both earnings and revenues topping the Zacks Consensus Estimate.

Notably, this quarter marked the tenth consecutive earnings beat for the company. Also, Darden raised its full-year fiscal 2017 adjusted earnings per share (EPS) projection.

Earnings and Revenues Discussion

Adjusted EPS were $1.32, beating the Zacks Consensus Estimate of $1.27 by 3.9%. Further, earnings surged 9.1% year over year on the back of higher revenues and lower share count.

Total revenue of $1.88 billion surpassed the Zacks Consensus Estimate of $1.86 billion by nearly 1%. Further, revenues increased 1.7% year over year.

Behind the Headline Numbers

Since the beginning of fiscal fourth-quarter 2015, Darden started reporting under four new segments: Olive Garden, LongHorn Steakhouse, Fine Dining, which includes The Capital Grille and Eddie V's, and Other Business. The Other Business segment includes Yard House, Seasons 52, Bahama Breeze, consumer packaged goods, and franchise revenues.

The company posted comps growth of 0.9% in the quarter, on a fiscal calendar basis. However, it was weaker than the comps growth of 1.7% in the preceding quarter. Meanwhile, the company witnessed an increase in sales across majority of its brands in the fiscal third quarter.

Sales at Olive Garden were up 1.5% year over year to $1.04 billion. A 1.4% increase in comps at Olive Garden was lower than the prior-quarter comps growth of 2.6%. Traffic declined 0.2%, however, there was a 1.3% improvement in pricing and 0.3% growth in menu mix.

Sales at Fine Dining increased 5.3% to $153.7 million. Comps at The Capital Grille rose 0.9%, lower than the prior-quarter comps growth of 1.2%. Meanwhile, Eddie V's posted comps growth of 4.7% higher than the 2.7% improvement recorded in the preceding quarter.

Revenues from Other Business inched down 0.2% year over year to $255.6 million. Comps at Seasons 52 inched up 0.8% for the quarter, as against the prior-quarter comps’ decline of 0.3%. Meanwhile, comps grew 0.5% at Bahama Breeze, lower than the comps growth of 2.6% in the preceding quarter. However, comps at Yard House dipped 1% for the quarter, comparing unfavorably with the 0.7% growth recorded in the last quarter.

At LongHorn Steakhouse, sales rose 2.1% to $434.3 million. Comps at LongHorn Steakhouse increased 0.2%, higher than the prior-quarter comps growth of 0.1%. Though traffic declined 1.6%, pricing and menu mix grew 1.6% and 0.2%, respectively.

Fiscal 2017 Outlook

The company now anticipates earnings in the range of $3.95 to $4.00 per share (earlier $3.87-- $3.97 per share), reflecting an updated outlook for comps growth of roughly 1.5% (earlier 1% to 2%). The Zacks Consensus Estimate for fiscal 2017 earnings is pegged at $3.93 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There have been four revisions higher for the current quarter compared to four lower.

VGM Scores

At this time, Darden's stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with a 'D'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

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

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

The stock has a Zacks Rank #2 (Buy). We are looking for an above average return from the stock in the next few months.


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