Darden Restaurants (NYSE: DRI) stock traded 4.4 percent lower on Tuesday after the company reported fiscal first-quarter revenue that fell short of market expectations. U.S. same-store sales also came up well short of consensus analyst estimates.
Darden reported quarterly earnings per share of 99 cents, in line with analyst expectations. However, revenue of $1.936 billion came up just shy of consensus estimates of $1.931 billion.
Darden also reported same-store sales growth of only 1.7 percent, below consensus forecasts of 2.1 percent growth.
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Key chain Olive Garden was particularly disappointing in the quarter. Olive Garden same-store sales grew only 1.9 percent compared to expectations of 2.5 percent growth. Bahama Breeze same-store sales growth of 1.2 percent also slightly missed analyst estimates of 1.3 percent growth.
Fortunately for Darden investors, LongHorn and Capital Grille both exceeded expectations in the first quarter. LongHorn same-store sales jumped 2.6 percent, while Capital Grille sales climbed 2 percent. Analysts had been expecting same-store sales growth of 2.2 percent and 1.7 percent, respectively.
Same-store sales for Cheddar’s Scratch Kitchen, which Darden acquired for $780 million in March, were down 1.4 percent.
Looking ahead, Darden reiterated previous 2018 guidance of same-store sales growth between 1 and 2 percent and total sales growth between 11.5 and 13 percent. Darden is also calling for full-year EPS of between $4.38 and $4.50.
Stephens analyst Will Slabaugh says Darden remains a top performer among peers, but restaurants are facing a challenging environment. Many restaurants operating in the Southeast were negatively impacted by hurricanes Harvey and Irma in August and September.
“We continue to see DRI as a sustained outperformer in a difficult restaurant environment, though we would note that this quarter represented a 300 basis point decline on a two-year basis at [Olive Garden],” Slabaugh says.
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“Although we were pleased to see another positive top-line result, we believe most future positivity is priced in at 9.7 times [estimated 2018 adjusted earnings before interest, tax, depreciation and amortization] and would await a more attractive entry point.”
Stephens maintains an “equal weight” rating and $95 price target for Darden stock.
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Olive Garden Slumps, LongHorn Shines for Darden originally appeared on usnews.com
