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DRI stock pops 5% as Darden Restaurants beats Q4 estimates

15:02, 23 June 2022

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An Italian salad very much like the ones on offer at Olive Garden
The parent company of the Olive Garden chain saw its stock rise as its latest earnings beat expectations – Photo: Shutterstock

A US restaurant chain's stock rose on Thursday as it reported quarterly earnings that beat estimates and unveiled a billion-dollar stock buyback plan.

Darden Restaurants (DRI), owner of the Olive Garden chain, saw its stock rise by as much as 5% in pre-market trading on Thursday. For the past month, the stock is down 1%.

Darden Restaurants (DRI) stock

Tracing its origins back to 1938, Darden Restaurants owns and operates almost 2,000 full-service restaurants in the US and Canada.

The company owns restaurant brands such as Olive Garden, LongHorn Steakhouse, Cheddar's Scratch Kitchen and Bahama Breeze.

Darden Restaurants at-a-glance slideDarden Restaurants

Olive Garden and LongHorn Steakhouse are among the top 50 biggest US chains, according to Restaurant Business magazine.

"We believe DRI's current valuation appropriately reflects the company's attractive medium- to longer-term outlook on the one hand and heightened near-term uncertainty on the other," Wedbush Securities analyst Nick Setyan wrote in a note obtained by Capital.com.

Wedbush has a "Neutral" rating on the stock with a $140 price target.

"The shares continue to look cheap, trading around 15% below our intrinsic valuation," Morningstar analyst Sean Dunlop wrote in a recent note.

Q4 earnings

Slide showing key Q4 earnings data for Darden RestaurantsDarden Restaurants

For its fiscal fourth quarter ended 29 May, Darden Restaurants reported earnings of $2.24 per share on sales which rose 14% to $2.6bn (£2.12bn, €2.47bn).

Analysts had been expecting earnings of $2.21 per share on sales of $2.5bn, according to figures widely available on financial news sites.

Same-restaurant sales jumped 11.7% in the latest quarter, beating analyst consensus of a 9.2% rise. The company said the biggest jump in same-restaurant sales was from The Capital Grille, where they soared 35%.

"While we remain optimistic about Darden's positioning even against a backdrop of softer consumer sentiment, given better diversified brands, a more affluent average consumer, and a better value proposition than in 2007-09, we remain a bit more cautious than management with respect to consumer health," Morningstar's Dunlop wrote.

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Dividend & buyback

Darden Restaurants has also increased its quarterly dividend by 10% to $1.21 per share and authorised a $1bn share repurchase programme.

Over the prior quarter, the company said it bought back approximately $237m worth of its own shares.

Outlook

Slide showing the financial outlook for Darden RestaurantsDarden Restaurants

Looking ahead, Darden Restaurants said it sees fiscal-year 2023 earnings per share in the range of $7.40 to $8.00 on sales of $10.2bn to $10.4bn, with Wall Street analysts expecting earnings per share of $8.10 on sales of $10.3bn.

“As we begin our new fiscal year, our focus remains on driving profitable sales, investing in the guest experience and simplifying operations,” Darden’s President and CEO Rick Cardenas said in a statement.

New CEO

Image of Rick Cardenas, the new CEO of Darden RestaurantsDarden Restaurants

Thursday’s set of earnings are the first for Darden’s new CEO Rick Cardenas, who replaced Eugene Lee at the end of May.

A professional accountant by trade, Cardenas started out at Darden by clearing restaurant tables and prior to taking the helm at Darden served as President and Chief Operating Officer.

 

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