Darden Restaurants, Inc. (DRI - Free Report) reported third-quarter fiscal 2020 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. The company reported better-than-expected earnings for the fifth straight quarter. Despite reporting robust results, the company’s shares are down 7% in pre-market trading session as it withdrew outlook and suspended dividends due to the coronavirus outbreak.
In the quarter under review, adjusted earnings came in at $1.90 per share, which outpaced the Zacks Consensus Estimate of $1.88. The bottom line also improved 5.6% 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 $2,346.5 million beat the consensus mark of $2,322 million. Moreover, sales improved 4.5% from the prior-year quarter driven by the addition of 40 net restaurants and an improvement of 2.3% 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 3.5% year over year to $1,169.3 million. Comps grew 2.1% at the segment, higher than the prior-quarter’s comp growth of 1.5%. Traffic increased 0.2%. Pricing improved 1.8% and menu-mix increased 0.1%.
Sales at Fine Dining improved 8% to $188.4 million. Comps at The Capital Grille climbed 4.2% compared with growth of 1.8% in second-quarter fiscal 2020. Further, Eddie V's reported comps growth of 3.9%, higher than 0.5% improvement in the prior quarter.
Sales at Other Business grew 4.3% year over year to $478.1 million. Moreover, comps at Seasons 52 rose 3% in the reported quarter against a comps decline of 3.5% in the prior quarter. Comps at Yard House inched up 1.8% compared with 0.7% increase in the previous quarter. However, comps slipped 0.5% at Bahama Breeze compared with a decline of 3.4% in the preceding quarter.
At LongHorn Steakhouse, sales advanced 5.7% to $510.7 million. Comps at the segment increased 3.9%, compared with comps growth of 2.6% in the year-ago quarter. Traffic improved 1.6%. Further, pricing and menu mix grew 1.9% and 0.4%, respectively.
In the reported quarter, comps at Cheddar's decreased 1.6% compared with a decline of 1.2% in the prior-year quarter.
Operating Highlights & Net Income
In the fiscal third quarter, total operating costs and expenses increased 4.4% year over year to $2,068.2 million. The rise can be attributed to an overall increase in food and beverage costs, restaurant expenses, and labor costs.
Darden Restaurants, Inc. Price, Consensus and EPS Surprise
Cash and cash equivalents as of Feb 23, 2020, totaled $321.7 million, down from $457.3 million as of May 26, 2019.
Inventories totaled $229.6 million at the end of the reported quarter. Long-term debt as of Feb 23, 2020, was $928.5 million, up from $927.7 million as of May 26, 2019.
During the fiscal third quarter, Darden repurchased approximately 0.6 million shares of its common stock for roughly $69 million.
Withdraws Fiscal Outlook
Due to coronavirus outbreak the company has withdrawn 2020 guidance. The company announced for the fourth quarter to date through Sunday, Mar 15, sales declined 5.9%. Moreover, in the first three weeks of the quarter, same-restaurant sales were up 3%, down 2% and 20.6%, respectively. The company has also suspended the quarterly cash dividend.
Zacks Rank & Key Picks
Darden has a Zacks Rank #4 (Sell). Some better-ranked stocks worth considering in the same space include Chipotle Mexican Grill, Inc. (CMG - Free Report) , Domino's Pizza, Inc. (DPZ - Free Report) and Brinker International, Inc. (EAT - 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, Domino's Pizza and Brinker International have an estimated long-term earnings growth rate of 19.3%, 13.4% and 6.5%, respectively.
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