Shares of Darden Restaurants, Inc. (DRI - Free Report) have fallen 5.2% following the company’s quarterly results on Dec 18. The decline can be primarily attributed to lower-than-expected second-quarter fiscal 2020 revenues. Further, the top line missed the consensus mark for the third straight quarter. However, the company reported better-than-expected earnings for the fourth straight quarter.
In the quarter under review, adjusted earnings came in at $1.12 per share, which outpaced the Zacks Consensus Estimate of $1.07. The bottom line also improved 21.7% year over year. Earnings were aided by the company’s relentless efforts to augment the basic operating factors of the business — food, service and ambiance.
Total sales of $2,056.4 million lagged the consensus mark of $2,058 million. However, sales improved 4.2% from the prior-year quarter driven by the addition of 37 net restaurants and a 2% increase in blended comps.
Sales by Segments
Darden reports business under four segments — Olive Garden, LongHorn Steakhouse, Fine Dining that includes The Capital Grille and Eddie V's, and Other Business.
Sales at Olive Garden increased 2.6% year over year to $1,023.6 million. Comps grew 1.5% at the segment, lower than the prior-quarter’s comp growth of 2.2%. Traffic declined 1.2%. Pricing improved 2% and menu-mix increased 0.7%.
Sales at Fine Dining improved 5.5% to $154.8 million. Comps at The Capital Grille rose 1.8% compared with 1.5% growth in first-quarter fiscal 2020. Further, Eddie V's reported comps growth of 0.5%, lower than 1.2% improvement in the prior quarter.
Sales at Other Business grew 3.5% year over year to $430.7 million. However, comps at Seasons 52 fell 3.5% in the reported quarter compared with a comps decline of 4.2% in first-quarter fiscal 2020. Comps at Yard House inched up 0.7% compared with 1.9% decrease in the prior quarter. Meanwhile, comps slipped 3.4% at Bahama Breeze compared with a decline of 3.2% in the preceding quarter.
At LongHorn Steakhouse, sales advanced 8.4% to $447.3 million. Comps at the segment increased 6.7%, compared with comps growth of 2.6% in the year-ago quarter. Traffic improved 3.2%. Also, pricing and menu mix grew 1.9% and 1.6%, respectively.
In the reported quarter, comps at Cheddar's decreased 1.2% compared with a 5.4% decline in the prior-year quarter.
Darden Restaurants, Inc. Price, Consensus and EPS Surprise
Operating Highlights & Net Income
In the fiscal second quarter, total operating costs and expenses increased 3.9% year over year to $1,896.2 million. The rise can be attributed to an overall increase in food and beverage costs, restaurant expenses, and labor costs.
Cash and cash equivalents as of Nov 24, 2019, totaled $157.3 million, down from $457.3 million as of May 26, 2019.
Inventories totaled $212.2 million at the end of the reported quarter. Long-term debt as of Nov 24, 2019, was $928.2 million, up from $927.7 million as of May 26, 2019.
During the fiscal second quarter, Darden repurchased approximately 1.2 million shares of its common stock for roughly $136 million.
Fiscal 2020 Outlook
Darden reiterated fiscal 2020 outlook. The company continues to expect total revenue growth of 5.3-6.3% during the fiscal year. This will include the 2% positive synergy from the 53rd week. Comps are projected to increase 1-2%. Darden’s earnings per share are anticipated to be $6.30-$6.45.
Meanwhile, the company expects inflation to be up 2.5% in 2020. With an effective tax rate of 10-11%, total capital spending is expected to be $450-$500 million. Darden plans to open 50 gross and 44 net new restaurants in 2020.
Zacks Rank & Key Picks
Darden has a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the same space include Chipotle Mexican Grill, Inc. (CMG - Free Report) , The Habit Restaurants, Inc. and Wingstop Inc. (WING - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chipotle Mexican Grill, Habit Restaurants and Wingstop’s have an estimated long-term earnings growth rate of 19.7%, 10% and 15.3%, respectively.
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