A month has gone by since the last earnings report for Darden Restaurants (DRI). Shares have added about 2.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Darden Restaurants due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Darden Q2 Earnings Beat Estimates, Revenues Miss
Darden reported second-quarter fiscal 2021 results, wherein the bottom line surpassed the Zacks Consensus Estimate, while the top line lagged the same. However, both the metrics declined on a year-over-year basis. Following the results, the company's shares declined 1.9% in pre-market trading session.
During the fiscal second quarter, the company reported adjusted earnings of 74 cents per share, beating the Zacks Consensus Estimate for earnings of 70 cents by 5.7%. In the prior-year quarter, the company had reported adjusted earnings per share of $1.12.
Total sales during the quarter came in at $1,656.5 million, missing the consensus mark of $1,685 million by 1.7%. Moreover, sales declined 19.4% from the prior-year quarter on account of negative blended same-restaurant sales of 20.6%. The decline was partially mitigated by the opening of 19 net new restaurants.
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 decreased 19% year over year to $829.5 million. Comps slumped 19.9% at the segment compared with the prior-quarter's comp decline of 28.2%.
Sales at Fine Dining declined 30.2% to $108.1 million. Comps fell 31% at the segment.
Sales at Other Business slumped 27.7% year over year to $311.5 million. Moreover, comps Other Business plunged 28.6%.
At LongHorn Steakhouse, sales were down 8.9% year over year to $407.4 million. Comps at the segment decreased 11.1%, compared with comps decline of 18.1% in the previous quarter.
Other Business Updates
For the week ended Nov 8, Nov 15, Nov 22, Nov 29, Dec 6 and Dec 13, comps at Darden declined 23.4%, 23.3%, 29.1%, 34%, 33.4% and 36.9%, respectively.
Meanwhile, comps at Olive Garden for the week ended Nov 8, Nov 15, Nov 22, Nov 29, Dec 6 and Dec 13 decreased 21.9%, 22.5%, 27.3%, 34.9%, 31.1% and 32,6%, respectively. Moreover, comps at LongHorn Steakhouse were down 12%, 12.1%, 18.5%, 22.9%, 19.5% and 23.3%, for the week ended Nov 8, Nov 15, Nov 22, Nov 29, Dec 6 and Dec 13, respectively.
Operating Highlights & Net Income
In the fiscal second quarter, total operating costs and expenses decreased 19% year over year to $1,535.8 million. The decline was owing to an overall decrease in food and beverage costs, restaurant expenses, and labor costs.
As of Nov 29, 2020, cash and cash equivalents came in at $777.3 million compared with $763.3 million as of May 31, 2020.
Inventories during the fiscal second quarter came in at $203 million. Long-term debt as of Nov 29, 2020, was $929.4 million, up from $928.8 million as of May 31, 2020.
The company declared a quarterly cash dividend of 37 cents per share, payable on Feb 1, 2021, to shareholders of record as of Jan 8, 2021.
The company expects total sales between 65% and 70% of prior-year sales. EBITDA is anticipated in the range of $170 million to $210 million. Earnings per share from continuing operations are anticipated at 50-75 cents.
The company expects to open 35-40 net new restaurants and projecttotal capital spending at $250 to $300 million in fiscal 2021.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -48.38% due to these changes.
At this time, Darden Restaurants has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Darden Restaurants has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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