Darden Restaurants, Inc. (DRI - Analyst Report) is scheduled to report first-quarter fiscal 2017 financial numbers on Oct 4, before the opening bell.
Last quarter, Darden posted a 1.85% positive earnings surprise. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 12.12%. Let’s see how things are shaping up for this announcement.
Factors Likely to Influence this Quarter
Darden’s earnings have surpassed the Zacks Consensus Estimate over the past seven quarters. Positive comps growth and costs-saving initiatives are driving bottom-line growth and are expected to boost first quarter results as well.
Meanwhile, initiatives like simplifying kitchen systems, developing new core menu items and technology-driven moves should drive the top line in the to-be-reported quarter. Moreover, the company’s Olive Garden Brand Renaissance plan – aimed to turn around its Olive Garden business – has started reaping benefits and we expect the improvement to be reflected in the upcoming results.
Notably, Darden plans to open 24–28 new outlets in fiscal 2017 to continue its expansion. However, its limited international presence – with restaurants located only in the U.S. and Canada – might work unfavorably for the company in the long run.
Moreover, increased labor costs are likely to dampen profits, while a soft consumer spending environment in the restaurant sector of the U.S. might somewhat keep comps under pressure.
DARDEN RESTRNT Price and EPS Surprise
Our proven model does not conclusively show that Darden is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.
Zacks ESP: Darden has an Earnings ESP of -1.21%. This is because the Most Accurate estimate stands at 82 cents per share while the Zacks Consensus Estimate is pegged at 83 cents per share.
Zacks Rank: Darden has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies in the restaurants sector to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Wingstop, Inc. (WING - Snapshot Report) has an Earnings ESP of +9.09% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Restaurant Brands International, Inc. (QSR - Snapshot Report) has an Earnings ESP of +4.88% and a Zacks Rank #3.
YUM! Brands, Inc. (YUM - Analyst Report) has an Earnings ESP of +1.83% and a Zacks Rank #3.
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