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Cost-Saving Initiatives to Boost Darden's (DRI) Q1 Earnings

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Darden Restaurants, Inc. (DRI - Free Report) is set to report first-quarter fiscal 2019 results on Sep 20, before the opening bell.

In the last-reported quarter, Darden posted impressive earnings and revenues, resulting from its relentless efforts in improving the basic operating factors of business — food, service and atmosphere. Further, revenue growth across every brand aided both top- and bottom-line growth.

We believe that synergies from Cheddar’s acquisition and various sales-boosting initiatives across brands are expected to benefit Darden’s first-quarter fiscal 2019 revenues. Moreover, efficient cost-containment efforts are likely to improve margins and the company’s bottom line.

Backed by better-than-expected earnings in 15 straight quarters, Darden’s shares have gained 42.7% in the past year, outperforming the industry’s collective growth of 5.8%. Let’s find out how its to-be-reported quarter’s results will turn out.


 

Acquisition & Sales-Building Efforts to Boost Revenues

Darden’s revenues are expected to increase year over year in the to-be-reported quarter, driven by various initiatives that include simplifying kitchen systems, operational excellence to enhance guest experience, menu innovation and other technology-driven moves. The Zacks Consensus Estimate for the quarter’s net sales is pegged at $2.03 billion, reflecting 4.7% year-over-year growth. In the first three quarters of fiscal 2018, Darden witnessed year-over-year sales growth of 12.7%.

Olive Gardenis likely to grow from the prior-year quarter on Brand Renaissance Plan and the To Go business, which offers online ordering at selected locations. The brand is particularly focusing on remodeling and bar refreshes. The revamped restaurants are already generating high same-restaurant sales and returns. In fact, supported by these initiatives, Olive Garden posted the 15thconsecutive quarter of positive comps in fourth-quarter fiscal 2018.

Expecting this forward trend to continue, the consensus estimate for comps growth is pegged at 2.5% in the to-be-reported quarter, comparing favorably with last-reported quarter’s comps growth of 2.4%.

Comps at LongHorn are expected to grow year over year, owing to culinary innovation in the segment. Darden is also working on a marketing strategy to improve execution, customer relationship management and digital advertising. Further, it continues to focus on strengthening the in-restaurant execution through investments in quality.

Owing to these efforts, segment comps have been growing since the past 21 consecutive quarters and the trend is likely to continue in the to-be-reported quarter. The consensus estimate for the segment’s first-quarter comps is projected to grow 2.4%.

Meanwhile, the acquisition of Cheddar’s seems to be a great fit in the company’s portfolio as it not only complements its existing brands but is also expected to aid in attracting more customers, given its extensive appeal. Synergies from the buyout of Cheddar’s are expected to continue favoring the segment’s revenues in the to-be-reported quarter.

Cost-Saving Efforts to Favor Bottom Line

Darden has an aggressive cost-management plan, under which it has significantly cut operating costs. In fact, for fiscal 2018, cost savings have resulted in synergies of about $10 million. The company’s cost cutting is likely to favor earnings growth in the to-be-reported quarter. The consensus estimate for fiscal first-quarter earnings is pegged at $1.23, mirroring 24.2% year-over-year growth.

Our Quantitative Model Suggests a Beat

According to our quantitative model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), along with a positive Earnings ESP, has a fair chance of beating estimates. Meanwhile, stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) are best avoided.

Darden has a Zacks Rank #2 and an Earnings ESP of +0.42%, a combination that increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Darden Restaurants, Inc. Price and EPS Surprise

 

Other Stocks to Consider

Here are some other companies in the Retail-Wholesale sector that according to our model possess the right combination of elements to post an earnings beat in the to-be-reported quarter:

Dunkin’ Brands has an Earnings ESP of +3.83% and a Zacks Rank #3. The company is expected to report quarterly results on Oct 25, 2018.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Amazon (AMZN - Free Report) has an Earnings ESP of +8.93% and a Zacks Rank #2. The company is estimated to report quarterly results on Oct 25, 2018.

Brinker (EAT - Free Report) has an Earnings ESP of +11.91% and a Zacks Rank #3. The company is anticipated to report quarterly numbers on Nov 7, 2018.

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