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Darden Restaurants (DRI) Up 40% in a Year: More Room to Run?
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Darden Restaurants, Inc. (DRI - Free Report) is likely to benefit from accretive acquisitions and same-restaurant sales growth. Also, its focus on off-premise offerings and digital initiatives bodes well.
Recently, the company reported impressive fourth-quarter fiscal 2023 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis, driven by same-restaurant sales growth of 4% and the addition of 47 net new restaurants.
Shares of DRI have increased 40.3% in the past year compared with the Zacks Retail – Restaurants industry’s rise of 27.9%. Earnings estimates for 2023 have moved north in the past 60 days. This depicts analysts' optimism over the company’s growth prospects. However, inflationary pressure is a concern.
Image Source: Zacks Investment Research
Growth Catalysts
Darden recently completed the acquisition of Ruth's Hospitality Group. Ruth's Chris, with 155 locations around the world, has 81 company-owned or company-operated restaurants and 74 franchised restaurants.
Within the first year of this acquisition, Darden anticipates generating pre-tax synergies in the $5-$10 million band. In the second year, pre-tax synergies are expected to be between $15 million and $20 million. The buyout is likely to be accretive to Darden's net earnings per share in fiscal 2024 by 10-12 cents, excluding acquisitions and integration-related expenses.
The emphasis on off-premise business model bodes well. In fourth-quarter fiscal 2023, off-premise sales contributed 25% to total sales at Olive Garden, 14% at LongHorn and 12% at Cheddar's Scratch Kitchen. The company has been benefiting from technological enhancements with reference to online ordering, the introduction of To Go capacity management and Curbside I'm Here notification. Given the solid feedback on account of enhanced customer experience and reduced friction, the company expects off-premise sales to remain elevated for some time
Darden focuses on technological enhancements to drive growth. The company emphasized on developing sophisticated customer relationship management programs, data analytics and data-driven marketing approaches to target existing and potential guests across its portfolio of brands. The improvements in the business model are likely to reinforce its ability to boost restaurant value across its brands.
Concerns
Despite solid cost management, higher labor costs due to increased wages are expected to persistently keep profits under pressure. Also, the company anticipates inflationary costs to persist for the remainder of the year.
In fourth-quarter fiscal 2023, total operating costs and expenses increased 5.7% year over year to $2,394.5 million. This escalation was primarily caused by a rise in food and beverage costs (driven by commodities inflation of approximately 3%), restaurant expenses (owing to supply-chain challenges and utility inflation) and labor costs. For fiscal 2024, the company expects total inflation of 3-4% and commodities inflation of 2.5%.
Zacks Rank & Key Picks
Darden Restaurants currently sports a Zacks Rank #3 (Hold).
The Zacks Consensus Estimate for PLAY’s 2023 sales and EPS indicates a rise of 17% and 27.6%, respectively, from the year-ago period’s levels.
Abercrombie & Fitch Co. (ANF - Free Report) carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 480.6%, on average. Shares of ANF have increased 99.9% in the past year.
The Zacks Consensus Estimate for ANF’s 2023 sales and EPS indicates a rise of 3.4% and 732%, respectively, from the year-ago period’s levels.
Chipotle Mexican Grill, Inc. (CMG - Free Report) carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 4.7%, on average. Shares of CMG have increased 59% in the past year.
The Zacks Consensus Estimate for CMG’s 2023 sales and EPS indicates a rise of 14.1% and 34.1%, respectively, from the year-ago period’s levels.
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Darden Restaurants (DRI) Up 40% in a Year: More Room to Run?
Darden Restaurants, Inc. (DRI - Free Report) is likely to benefit from accretive acquisitions and same-restaurant sales growth. Also, its focus on off-premise offerings and digital initiatives bodes well.
Recently, the company reported impressive fourth-quarter fiscal 2023 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis, driven by same-restaurant sales growth of 4% and the addition of 47 net new restaurants.
Shares of DRI have increased 40.3% in the past year compared with the Zacks Retail – Restaurants industry’s rise of 27.9%. Earnings estimates for 2023 have moved north in the past 60 days. This depicts analysts' optimism over the company’s growth prospects. However, inflationary pressure is a concern.
Image Source: Zacks Investment Research
Growth Catalysts
Darden recently completed the acquisition of Ruth's Hospitality Group. Ruth's Chris, with 155 locations around the world, has 81 company-owned or company-operated restaurants and 74 franchised restaurants.
Within the first year of this acquisition, Darden anticipates generating pre-tax synergies in the $5-$10 million band. In the second year, pre-tax synergies are expected to be between $15 million and $20 million. The buyout is likely to be accretive to Darden's net earnings per share in fiscal 2024 by 10-12 cents, excluding acquisitions and integration-related expenses.
The emphasis on off-premise business model bodes well. In fourth-quarter fiscal 2023, off-premise sales contributed 25% to total sales at Olive Garden, 14% at LongHorn and 12% at Cheddar's Scratch Kitchen. The company has been benefiting from technological enhancements with reference to online ordering, the introduction of To Go capacity management and Curbside I'm Here notification. Given the solid feedback on account of enhanced customer experience and reduced friction, the company expects off-premise sales to remain elevated for some time
Darden focuses on technological enhancements to drive growth. The company emphasized on developing sophisticated customer relationship management programs, data analytics and data-driven marketing approaches to target existing and potential guests across its portfolio of brands. The improvements in the business model are likely to reinforce its ability to boost restaurant value across its brands.
Concerns
Despite solid cost management, higher labor costs due to increased wages are expected to persistently keep profits under pressure. Also, the company anticipates inflationary costs to persist for the remainder of the year.
In fourth-quarter fiscal 2023, total operating costs and expenses increased 5.7% year over year to $2,394.5 million. This escalation was primarily caused by a rise in food and beverage costs (driven by commodities inflation of approximately 3%), restaurant expenses (owing to supply-chain challenges and utility inflation) and labor costs. For fiscal 2024, the company expects total inflation of 3-4% and commodities inflation of 2.5%.
Zacks Rank & Key Picks
Darden Restaurants currently sports a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Zacks Retail and Wholesale sector are:
Dave & Buster's Entertainment, Inc. (PLAY - Free Report) carries a Zacks Rank #1. PLAY has a trailing four-quarter earnings surprise of 6.8%, on average. Shares of PLAY have gained 30.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PLAY’s 2023 sales and EPS indicates a rise of 17% and 27.6%, respectively, from the year-ago period’s levels.
Abercrombie & Fitch Co. (ANF - Free Report) carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 480.6%, on average. Shares of ANF have increased 99.9% in the past year.
The Zacks Consensus Estimate for ANF’s 2023 sales and EPS indicates a rise of 3.4% and 732%, respectively, from the year-ago period’s levels.
Chipotle Mexican Grill, Inc. (CMG - Free Report) carries a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 4.7%, on average. Shares of CMG have increased 59% in the past year.
The Zacks Consensus Estimate for CMG’s 2023 sales and EPS indicates a rise of 14.1% and 34.1%, respectively, from the year-ago period’s levels.