Darden Restaurants, Inc. DRI posted mixed fourth quarter and fiscal 2016 results wherein the bottom line beat the Zacks Consensus Estimate and the top line lagged the same.
Notably, this quarter marked the seventh consecutive earnings beat for the company. The company raised its quarterly dividend by 12% and also provided guidance for fiscal 2017.
Earnings and Revenue Discussion
Adjusted earnings per share were $1.10, beating the Zacks Consensus Estimate of $1.08 by approximately 1.9%. Excluding the 53rd week of operations, adjusted earnings per share were up 8.9% year over year. The upside in earnings reflects positive comps and lower operating expenses.
Adjusted earnings exclude costs related to the real estate plan implementation and debt retirement costs.
Total revenue of $1.79 billion, however, lagged the Zacks Consensus Estimate of $1.81 billion by nearly 1% and decreased 4.7% year over year. The decline can be mainly attributed to one extra week of operations included in the year-ago quarter.
Behind the Headline Numbers
Beginning fiscal fourth-quarter 2015, Darden began reporting under four new segments: Olive Garden, LongHorn Steakhouse, Fine Dining, which includes The Capital Grille and Eddie V's, and Other Business. The Other Business segment includes Yard House, Seasons 52, Bahama Breeze, consumer packaged goods, and franchise revenues.
The company posted comps growth of 1.7% in fiscal fourth quarter, on a fiscal calendar basis. However, it compared unfavorably with comps growth of 6.2% in the preceding quarter. Though the company posted positive comps at all its brands, it compared unfavorably with the prior quarter comps. Moreover, the company witnessed a decline in sales across all its segments in the fiscal fourth quarter.
Sales at Olive Garden were down 5.4% year over year to $981.8 million. A 1.6% increase in comps at Olive Garden compared unfavorably with prior-quarter comps growth of 6.8% as traffic declined 0.1%. However, there was a 0.7% improvement in pricing and 1% growth in menu mix.
The Olive Garden Brand Renaissance plan, which includes simplifying kitchen systems, developing new core menu items and revamping the restaurant design, failed to revive traffic growth.
Sales at Fine Dining decreased 4.1% to $131.6 million, with comps at The Capital Grille rising 1.5%, lower than the prior-quarter comps growth of 5.3%. Meanwhile, Eddie V's posted comps growth of 0.9%, lower than the 4.1% improvement recorded in the preceding quarter.
Revenues from Other Business declined 0.8% year over year to $263.6 million. Comps grew 1.4%, 3.7% and 5.4% at Yard House, Seasons 52 and Bahama Breeze, respectively. Comps at all three concepts compared unfavorably with the prior-quarter levels.
At LongHorn Steakhouse, sales were down 5.7% to $413.2 million. Comps at LongHorn Steakhouse increased 1.1% but compared unfavorably with the prior-quarter comps growth of 5.2%, given a 3.2% decline in traffic. However, the segment witnessed a 1.8% improvement in pricing and positive menu mix of 2.5%.
Fiscal 2016 Results
Adjusted earnings per share in fiscal 2016 were $3.53, ahead of the Zacks Consensus Estimate of $3.51. Excluding the 53rd week of operations, adjusted earnings per share were up 37.9% year over year.
Total revenue of $6.93 billion increased 2.5% year over year and missed the consensus mark of $6.95 billion.
Dividend Hike
The board of directors announced a 12% increase in the quarterly dividend from 50 cents to 56 cents per share, payable on Aug 1, 2016, to shareholders of record as of Jul 11, 2016. This adds up to an annual dividend of $2.24, representing a dividend yield of over 3%.
Fiscal 2017 Outlook
Adjusted earnings per share in fiscal 2017 are expected in the range of $3.80 to $3.90 per share, which is below the current Zacks Consensus Estimate of $3.98 per share.
Notably, the company plans to open new units of 24 to 28 restaurants in fiscal 2017 while comps growth is anticipated in the band of 1% to 2% in fiscal 2017
Meanwhile, capital expenditures are estimated in the range of $310 to $315 million.
Zacks Rank & Stocks to Consider
Darden currently has a Zacks Rank #2 (Buy). Other stocks worth considering in this sector include Dave & Buster's Entertainment, Inc. PLAY, Famous Dave's of America Inc. DAVE and Carrols Restaurant Group, Inc. TAST. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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 >>
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
Be the first to comment