Leading restaurateur, Darden Restaurants, Inc. (DRI) is set to report fiscal first-quarter 2015 results on Sep 12, 2014, before the opening bell. Last quarter, the company posted a negative earnings surprise of 40.9%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Underperformance of Darden’s core brands, Red Lobster and Olive Garden has been a headwind for quite some time. The company completed the sale of its Red Lobster segment to Golden Gate Capital in July. The divestiture will also help Darden to focus on its more profitable brands like LongHorn Steakhouse and Capital Grille.
Moreover, in order to make the business more profitable, the company is working on its comprehensive strategic plan. However, the costs associated with the strategic action plan are hurting its bottom line. The trend is expected to continue in the upcoming quarter.
Another major concern for the company is commodity inflation due to higher shrimp and beef costs. Higher shrimp prices due to production issues in Asia and higher seafood, beef, poultry and dairy costs are expected to hurt results in the to-be-reported quarter.
In view of these factors, the company expects adjusted earnings for fiscal 2014 to range within 31 to 33 cents, which it announced in its preliminary results reported . The company also expects comps at its core brand – Olive Garden – to decline in the first quarter. However, comps for LongHorn Steakhouse and Specialty Restaurant Group are expected to be marginally up.
With such bleak preliminary results, this restaurateur failed to impress analysts. In fact, the concern over the dwindling popularity of its main brand forced many analysts to significantly lower their fiscal first-quarter earnings estimates over the past 30 days. The Zacks Consensus Estimate for the first quarter declined 30% to 32 cents per share over the same time frame.
Earnings Whispers?
Our proven model does not conclusively show that Darden is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP for Darden is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 32 cents.
Zacks Rank: Darden’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
Other Stocks to Consider
Other stocks in the restaurants industry and broader retail wholesale sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
BJ's Restaurants, Inc. (BJRI), with an Earnings ESP of +15.38% and a Zacks Rank #2 (Buy).
Chipotle Mexican Grill, Inc. (CMG), with an Earnings ESP of +3.66% and a Zacks Rank #1 (Strong Buy).
Papa Murphy's Holdings, Inc. (FRSH), with an Earnings ESP of + 14.29% and a Zacks Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment