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Darden (DRI) Stock Down Despite Q2 Earnings & Revenue Beat

Darden's (DRI) second-quarter fiscal 2022 results reflect benefits from solid segmental performances and same-restaurant sales.

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This story originally appeared on Zacks

Darden Restaurants, Inc. DRI reported impressive second-quarter fiscal 2022 results, with both earnings and revenues surpassing the Zacks Consensus Estimate. The bottom line beat the consensus mark for the 12th straight quarter while the top line outpaced the same for the fourth consecutive quarter. Moreover, the metrics increased on a year-over-year basis.

Despite the solid results, shares of Darden declined 3.7% in the pre-market trading session. Negative investor sentiments were witnessed as DRI provided a lower-than-expected fiscal 2022 earnings guidance, primarily due to increased labor costs.

- Zacks

Earnings & Revenues

During the fiscal second quarter, Darden reported adjusted earnings of $1.48 per share, beating the Zacks Consensus Estimate of $1.43 by 3.5%. In the prior-year quarter, DRI had reported adjusted earnings per share (EPS) of 74 cents.

Darden Restaurants, Inc. Price, Consensus and EPS Surprise

Darden Restaurants, Inc. Price, Consensus and EPS Surprise

Darden Restaurants, Inc. price-consensus-eps-surprise-chart | Darden Restaurants, Inc. Quote

Total sales during the quarter came in at $2,272.2 million, beating the consensus mark of $2,224 million by 2.2%. Moreover, sales increased 37% from the prior-year quarter’s level on solid blended same-restaurant sales of 34.4%. This apart, the opening of 34 net new restaurants added to the positives.

Sales by Segments

Darden reports business under four segments, namely Olive Garden, LongHorn Steakhouse, Fine Dining that includes The Capital Grille and Eddie V's as well as Other Business.

During the fiscal second quarter, sales at Olive Garden increased 29.9% year over year to $1,077.2 million. Comps in the segment rose 29.3% year over year compared with 37.1% growth reported in the previous quarter.

Sales at Fine Dining soared 75.9% year over year to $188.7 million. Comps in the segment surged 61.6% year over year compared with 84.6% growth reported in the previous quarter.

Sales at Other Business jumped 47% year over year to $459.1 million. Moreover, comps in the Other Business rose 42.9% year over year compared with 65.8% growth reported in the previous quarter.

At LongHorn Steakhouse, sales were up 34.3% year over year to $547.2 million. Comps in the segment climbed 31.2% year over year compared with 47% growth reported in the previous quarter.

Operating Highlights

In the fiscal second quarter, total operating costs and expenses increased 32.1% year over year to $2,029.3 million. This escalation was primarily due to a rise in food and beverage costs, restaurant expenses and labor costs.

Balance Sheet

As of Nov 28, 2021, cash and cash equivalents came in at $746.3 million compared with $947.8 million as of Aug 29, 2021.

Inventories during the fiscal second quarter came in at $230.2 million compared with $210.9 in the previous quarter. Long-term debt as of Nov 28, 2021, was $929 million compared with $936.7 million as of Aug 29, 2021.

During the fiscal second quarter, Darden’s board of directors repurchased 1.8 million shares of its common stock worth approximately $266 million. At the end of second-quarter fiscal 2022, DRI had approximately $761 million remaining under its repurchase authorization.

Darden declared a quarterly cash dividend of $1.10 per share. The dividend will be payable Feb 1, 2022, to its shareholders of record as of Jan 10, 2022.

Updated Fiscal 2022 Outlook

For fiscal 2022, Darden raised its sales expectation to $9.55-$9.7 billion from the previous forecast of $9.4-$9.6 billion. DRI expects total sales growth in the range of 9-11% (from pre-COVID levels) compared with the previous anticipation of 7-11%. Same-restaurant sales are expected to increase in the range of 29-31% (from the last fiscal year’s level) from the previous estimate of 27-30%.

EBITDA for fiscal 2022 is anticipated in the range of $1.55-$1.60 billion compared with the previous projection of $1.54-$1.60 billion. EPS from continuing operations is anticipated in the band of $7.35-$7.60 compared with the previous guidance of $7.25-$7.60. However, the Zacks Consensus Estimate for 2022 earnings is pegged at $7.62. The effective tax rate for the full fiscal is anticipated at 14%.

Darden expects to open 35-40 net new restaurants and projects a total capital spending of approximately $425 million for fiscal 2022.

Zacks Rank & Key Restaurant Picks

Darden currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space are Papa John's International, Inc. PZZA, Noodles & Company NDLS and McDonald's Corporation MCD.

Papa John's currently carries a Zacks Rank #2 (Buy). PZZA benefits from its off-premise business model. Sales pertaining to the same exceeded the pre-pandemic levels. We believe that higher customer count coupled with targeted off-premise marketing will likely drive the channel’s performance in the upcoming periods.

Papa John's has a trailing four-quarter earnings surprise of 27.2%, on average. PZZA’s fiscal 2021 earnings are likely to witness growth of 142.9%. The stock has soared 42.6% in the past year.

Noodles & Company is currently Zacks #2 Ranked. Robust comparable restaurant sales growth and increased average unit volumes are favoring NDLS. In third-quarter 2021, average unit volumes climbed 16% year over year.

The Zacks Consensus Estimate for Noodles & Company’s current financial-year sales and earnings per share (EPS) suggests growth of 22.5% and 196.6%, respectively, from the corresponding year-ago period’s levels. NDLS has returned 13.8% in the past year.

McDonald’s carries a Zacks Rank #2 at present. A robust drive-thru presence, and investments in delivery and digitization in the past few years have helped MCD tide over the pandemic. MCD has a trailing four-quarter earnings surprise of 6.8%, on average.

The Zacks Consensus Estimate for McDonald's current financial-year sales and EPS suggests growth of 20.9% and 55.7%, respectively, from the corresponding year-ago period’s levels. MCD has rallied 23.4% in the past year.



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