Orlando, Florida-based Darden Restaurants Inc (DRI) recently announced that Hurricane Irene will likely impact its first quarter 2012 earnings by 2 cents and same-store results at Red Lobster, Olive Garden and LongHorn Steakhouse restaurants by 20 to 30 basis points.
The Zacks Consensus Estimate for the first quarter of 2012 is pegged at 87 cents per share. The company will report its first quarter 2012 earnings on September 28.
Darden expects earnings per share from continuing operations of 78 cents during the quarter ended August 28. The company expects combined same-restaurant sales for its three core brands, Olive Garden, Red Lobster and LongHorn Steakhouse to increase 2.8% for the period.
The U.S same restaurant sales at Red Lobster, Longhorn Steakhouse and Specialty Restaurant Groups are estimated to escalate 10.7%, 4.8% and 5.1%, respectively, in the first quarter of 2012. However, comparable restaurant sales at Olive Garden are expected to plunge 2.9%.
Darden has also trimmed its earnings per share growth outlook for 2012. The company now expects earnings per share growth toward the lower end of its previously announced range of 12% to 15%. However, the company raised its overall sales growth by 0.5% to 6.5%-7.5%, due to an increase in blended same-store sales growth estimate for its three core brands to 3% from its earlier forecast of 2.5%. The company retained its 80 to 90 net new restaurants' goal for fiscal 2012.
To boost shareholder value, Darden also raised its share repurchase target for 2012 to $450 million-$500 million from its previous target of $350 million to $400 million. Darden’s management actively manages its capital and returns much of its free cash to shareholders through share repurchases and dividends. Moreover, in fiscal 2012, management intends to pay out approximately $225 million in dividends to shareholders.
We believe that the upcoming quarter will also be affected by food cost pressure. However, in the second half of 2012, the company expects cost inflation to minimize. Darden also continues to register improving blended comparable restaurant sales at all other brands and business at its core brand – Olive Garden is also progressing.
Darden holds a Zacks #3 Rank (short-term Hold rating). We also reiterate our long-term Neutral recommendation on the stock. The company faces stiff competition from peers like Brinker International inc. (EAT) and Red Robin Gourmet Burgers Inc. (RRGB).
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