Shares of Darden Restaurants, Inc. (DRI - Free Report) are riding high on robust earnings trend, various sales boosting efforts, the Cheddar's buyout and initiatives to attract guests at LongHorn and other units. As a result, the stock has surged 40.7% in a year’s time compared with the industry’s 21.8% growth.
We believe there is still momentum left in this Zacks Rank #2 (Buy) stock. This is because has been witnessing upward earnings estimate revisions of 9 cents to $5.78 for fiscal 2019 over the past 30 days. Additionally, it has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks such as Dunkin' Brands Group, Inc. (DNKN - Free Report) , Restaurant Brands International Inc. (QSR - Free Report) and BJ's Restaurants, Inc. (BJRI - Free Report) , which belong to the same industry, have also gained 26.6%, 21% and 1.3%, respectively, in the past year. Let’s delve deeper and find out the factors that kept Darden ahead of its peers.
Darden’s acquisition of Cheddar's Scratch Kitchen (Cheddar's), in April 2017, has added an undisputed casual dining value to the company’s portfolio of differentiated brands. It also helped Darden to further boost its scale. The chain’s total sales increased 1% in the third quarter of fiscal 2019. Further, management had made significant operational readjustment to the brand, which is expected to reap long-term benefits.
The company is progressing well with the integration of Cheddar’s and seems to be optimistic about its outcome. In fiscal 2018, management realized roughly $10 million of cost synergies and expects to realize the same in the range of $22-$27 million by the end of fiscal 2019. Over the current fiscal year, Darden plans to make significant non-guest related changes, which is expected to have an impact on restaurant level execution. Moving forward, Darden sees Cheddar bringing incredible opportunity for long-term growth.
In order to boost the performance of the Olive Garden brand, the company implemented a set of initiatives under its Brand Renaissance Plan. These plans included simplifying kitchen systems, improving sales planning and scheduling, and operational excellence to enhance guest experience, developing new core menu items, allowing customization, and making smarter promotional investments. Also, the brand is focusing on remodeling and bar refreshes.
The revamped restaurants are already generating high same-restaurant sales and returns. In the third quarter of fiscal 2019, Olive Garden's off-premise business grew 13% and represented 15.9% of total sales. Supported by these initiatives, Olive Garden posted the 18th consecutive quarter of positive comps in third-quarter fiscal 2019.
Darden’s focus on an aggressive cost management plan, under which it is trying to significantly cut operating costs, is an added positive. For fiscal 2018, cost savings have resulted in synergies of about $10 million. Moreover, the company plans to reinvest any incremental savings into pricing and long-term growth drivers for the business, particularly emphasizing on enhancing quality to drive market share gains.
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