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Darden (DRI) Up 56% in 6 Months: Can the Rally Continue in 2021?
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Darden Restaurants (DRI - Free Report) is benefiting from robust online sales, impressive earnings trend and other sales building initiatives. Consequently, the company’s shares have gained 55.7% in the past six months compared with the industry’s rally of 25.1%. However, dismal same- restaurant sales and coronavirus woes linger.
Growth Triggers
The company boosted sales growth with the initiation of online ordering services. For second-quarter fiscal 2021, online sales accounted for more than 55% of total off-premise sales. Online sales tripled from the last year. At Olive Garden, 20% of the company’s total sales for the fiscal second quarter were digital. Its core focus has been on culinary innovation and providing regional flavors.
Moreover, in an effort to drive sales at the Olive Garden brand, Darden introduced some brand restructuring plans including simplifying kitchen systems, improving sales planning and scheduling, operational excellence to improve guest experience, developing new core menu items, allowing customization, along with making smarter promotional investments. The revamped restaurants are already generating high same-restaurant sales and returns.
At LongHorn, the company is focusing on core menu, culinary innovation and providing regional flavors to attract guests. It is also working on the marketing strategy to improve execution, customer relationship management and digital advertising, as well as maintain a strong promotional pipeline that leverages the segment’s expertise. Further, the company continues to focus on strengthening in-restaurant execution through investments in quality and simplification of operations in order to augment guest experience. Sales are being driven by various initiatives and personalized services, which are likely to aid long-term growth.
Maintaining liquidity has become a herculean task for companies amid the pandemic. Darden has a strong balance sheet, which will help it tide over the ongoing crisis. As of Nov 29, 2020, the company’s cash balance totaled nearly $777.3 million compared with $655 million on Aug 31, 2020. On an encouraging note, it has been generating positive cash flow. As of Nov 29, 2020, the company’s long-term debt was $929.4 million compared with $929.1 million on Aug 31, 2020. For second-quarter 2020, it had a debt to capital ratio of 0.27, which indicates that its liabilities can be managed smoothly.
Concerns
Worryingly, coronavirus-related woes still persist. Due to the social distancing protocol, traffic in third-quarter fiscal 2021 is likely to remain low.
Moreover, for second-quarter fiscal 2021, same-restaurant sales decreased across the segments due to the pandemic. Same-restaurant sales at Olive Garden, Fine Dining, LongHorn Steakhouse and Other Business fell 19%, 31%, 28.6% and 11.1%, respectively. Additionally, total sales dropped 19.4% from the prior-year level due to negative blended same-restaurant sales of 20.6%.
For the week ended Nov 8, Nov 15, Nov 22, Nov 29, Dec 6 and Dec 13, comps at Darden declined 23.4%, 23.3%, 29.1%, 34%, 33.4% and 36.9%, respectively. Meanwhile, comps at Olive Garden for the week ended Nov 8, Nov 15, Nov 22, Nov 29, Dec 6 and Dec 13 decreased 21.9%, 22.5%, 27.3%, 34.9%, 31.1% and 32.6%, respectively. Moreover, comps at LongHorn Steakhouse were down 12%, 12.1%, 18.5%, 22.9%, 19.5% and 23.3% for the week ended Nov 8, Nov 15, Nov 22, Nov 29, Dec 6 and Dec 13, respectively.
Some better-ranked stocks in the same space include Jack in the Box Inc. (JACK - Free Report) , Ruth's Hospitality Group, Inc. and FAT Brands Inc. (FAT - Free Report) . Jack in the Box sport a Zacks Rank #1, while Ruth's Hospitality and FAT Brands carries a Zacks Rank #2 (Buy).
Jack in the Box has a three-five-year earnings per share growth rate of 10.6%.
Ruth's Hospitality and FAT Brands’ earnings for 2021 are expected to surge 264.6% and 127%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Darden (DRI) Up 56% in 6 Months: Can the Rally Continue in 2021?
Darden Restaurants (DRI - Free Report) is benefiting from robust online sales, impressive earnings trend and other sales building initiatives. Consequently, the company’s shares have gained 55.7% in the past six months compared with the industry’s rally of 25.1%. However, dismal same- restaurant sales and coronavirus woes linger.
Growth Triggers
The company boosted sales growth with the initiation of online ordering services. For second-quarter fiscal 2021, online sales accounted for more than 55% of total off-premise sales. Online sales tripled from the last year. At Olive Garden, 20% of the company’s total sales for the fiscal second quarter were digital. Its core focus has been on culinary innovation and providing regional flavors.
Moreover, in an effort to drive sales at the Olive Garden brand, Darden introduced some brand restructuring plans including simplifying kitchen systems, improving sales planning and scheduling, operational excellence to improve guest experience, developing new core menu items, allowing customization, along with making smarter promotional investments. The revamped restaurants are already generating high same-restaurant sales and returns.
At LongHorn, the company is focusing on core menu, culinary innovation and providing regional flavors to attract guests. It is also working on the marketing strategy to improve execution, customer relationship management and digital advertising, as well as maintain a strong promotional pipeline that leverages the segment’s expertise. Further, the company continues to focus on strengthening in-restaurant execution through investments in quality and simplification of operations in order to augment guest experience. Sales are being driven by various initiatives and personalized services, which are likely to aid long-term growth.
Maintaining liquidity has become a herculean task for companies amid the pandemic. Darden has a strong balance sheet, which will help it tide over the ongoing crisis. As of Nov 29, 2020, the company’s cash balance totaled nearly $777.3 million compared with $655 million on Aug 31, 2020. On an encouraging note, it has been generating positive cash flow. As of Nov 29, 2020, the company’s long-term debt was $929.4 million compared with $929.1 million on Aug 31, 2020. For second-quarter 2020, it had a debt to capital ratio of 0.27, which indicates that its liabilities can be managed smoothly.
Concerns
Worryingly, coronavirus-related woes still persist. Due to the social distancing protocol, traffic in third-quarter fiscal 2021 is likely to remain low.
Moreover, for second-quarter fiscal 2021, same-restaurant sales decreased across the segments due to the pandemic. Same-restaurant sales at Olive Garden, Fine Dining, LongHorn Steakhouse and Other Business fell 19%, 31%, 28.6% and 11.1%, respectively. Additionally, total sales dropped 19.4% from the prior-year level due to negative blended same-restaurant sales of 20.6%.
For the week ended Nov 8, Nov 15, Nov 22, Nov 29, Dec 6 and Dec 13, comps at Darden declined 23.4%, 23.3%, 29.1%, 34%, 33.4% and 36.9%, respectively. Meanwhile, comps at Olive Garden for the week ended Nov 8, Nov 15, Nov 22, Nov 29, Dec 6 and Dec 13 decreased 21.9%, 22.5%, 27.3%, 34.9%, 31.1% and 32.6%, respectively. Moreover, comps at LongHorn Steakhouse were down 12%, 12.1%, 18.5%, 22.9%, 19.5% and 23.3% for the week ended Nov 8, Nov 15, Nov 22, Nov 29, Dec 6 and Dec 13, respectively.
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 Jack in the Box Inc. (JACK - Free Report) , Ruth's Hospitality Group, Inc. and FAT Brands Inc. (FAT - Free Report) . Jack in the Box sport a Zacks Rank #1, while Ruth's Hospitality and FAT Brands carries a Zacks Rank #2 (Buy).
Jack in the Box has a three-five-year earnings per share growth rate of 10.6%.
Ruth's Hospitality and FAT Brands’ earnings for 2021 are expected to surge 264.6% and 127%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>