On Thursday, Evercore ISI maintained its In Line rating and $165.00 price target for Darden Restaurants (NYSE:DRI), following the company's fiscal first-quarter results.
The report highlighted that Darden's same-store sales (SSS) fell short of expectations, with a decline of 1.1%, which was more than the anticipated decrease of 0.4% and consensus estimates. Notably, Olive Garden, Darden's flagship chain, experienced a 2.9% drop in SSS, underperforming against both the analyst's forecast of a 1.7% decline and the consensus of a 1.3% decrease.
The company's adjusted earnings per share (EPS) for the quarter came in at $1.75, which marked a 2% year-over-year decrease. This result was lower than Evercore ISI's projection of $1.85 and the consensus estimate of $1.83, with a lower tax rate contributing to the earnings.
Despite the downturn, Olive Garden's long-term SSS over a five-year period showed a 4% increase, although this was a slowdown from the 7.8% rise seen in the third quarter of fiscal 2024.
Olive Garden's promotional efforts, including the Never Ending Pasta Bowl which started on August 26, are believed to have bolstered improvements in customer traffic following a weak July. However, Olive Garden's SSS still lagged behind the casual dining industry by 1 percentage point, consistent with the previous quarter's performance.
In contrast, Longhorn Steakhouse, another brand within the Darden portfolio, posted a SSS growth of 3.7%, outperforming Evercore ISI's estimate of 3% growth and matching the consensus. This growth also exceeded the casual dining industry's performance by a significant 6 percentage points, marking an improvement from the 4 percentage point lead in the last quarter.
The fine dining and other specialty segments of Darden, which account for approximately 30% of the company's sales, also underperformed. Fine dining SSS saw a 6% decline, falling short of Evercore ISI's predicted 2% drop and the consensus of a 1% decrease. The other specialty segment, which includes brands like Cheddar's, saw a 1.8% fall in SSS, again underperforming compared to Evercore ISI's and consensus estimates.
In other recent news, Darden Restaurants has announced a delivery partnership with Uber Technologies (NYSE:UBER). The pilot program is set to begin in late 2024 at select Olive Garden locations, with plans to extend the service to all 900 national outlets by May 2025. This strategic move follows a shortfall in Darden's first-quarter sales and profit, with a 1.1% drop in same-store sales and a decrease in customer traffic attributed to persistent inflation. Despite this, the company reported an adjusted profit of $1.75 per share for the first quarter and net sales of $2.76 billion.
In recent analyst notes, Barclays reiterated an Overweight rating on Darden with a price target of $180.00, while Citi maintained its Buy rating with a price target of $191.00. However, TD Cowen downgraded its rating to hold due to concerns about sales drivers. These ratings reflect the analysts' perspectives on Darden's recent earnings and business developments.
Furthermore, Darden recently acquired Chuy's, a chain of full-service Tex-Mex restaurants, for $605 million, a move expected to have a neutral impact on the earnings per share for fiscal year 2025.
InvestingPro Insights
As Darden Restaurants (NYSE:DRI) navigates a mixed performance across its brand portfolio, investors may look to deeper financial metrics and market trends for guidance. According to InvestingPro data, Darden boasts a market capitalization of $18.92 billion, reflecting its substantial presence in the industry. The company has demonstrated resilience with a revenue growth of 8.6% over the last twelve months as of Q4 2024, indicating an ability to increase sales despite market challenges. Moreover, Darden's commitment to shareholder returns is evident, as it has maintained dividend payments for 30 consecutive years, with a notable dividend growth of 15.7% in the same period. This dedication to dividends aligns with an InvestingPro Tip that highlights Darden's track record of raising its dividend for three consecutive years.
However, not all indicators are as favorable. The company is trading at a high P/E ratio of 18.78, which suggests that its stock price is relatively expensive compared to its near-term earnings growth. This is supported by another InvestingPro Tip noting that the company is trading at a high Price / Book multiple of 8.44. Investors should also consider that while Darden has been profitable over the last twelve months, analysts have revised their earnings downwards for the upcoming period. This mix of strong financial health with areas of concern underscores the complexity of investment decisions in the restaurant industry. For those seeking a comprehensive analysis, additional InvestingPro Tips related to Darden Restaurants can be found at https://www.investing.com/pro/DRI, providing a more nuanced view of the company's prospects.
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