Darden Restaurants (DRI) shares leapt Thursday despite it posting weaker-than-expected revenues in the last quarter after disappointing sales at its usually solid Olive Garden and LongHorn Steakhouse brands.
Total sales in its Fiscal third quarter increased 6.2% to $3.16 billion, chiefly on its acquisition of Tex-Mex brand Chuy. Same store sales rose 0.7%, below the 1.7% expected on Wall Street.
Olive Garden’s same-store sales rose 0.6% against the expected growth of 1.5%, while LongHorn’s same-store sales was better at 2.6%, but still missed forecasts of 5% by a fairly wide margin.
Darden’s fine dining business, which includes The Capital Grille and Ruth’s Chris Steak House, posted same-store sales declines of 0.8%.Darden’s other businesses, including the likes of Cheddar’s Scratch Kitchen and Yard House, posted a 0.4% decline in same-store sales.
Full-Year Guidance Remains
For the whole year, the company stuck to its guidance for total sales of approximately $12.1 billion and same-restaurant sales growth of approximately 1.5%. DRI also narrowed its forecast adjusted earnings to a range of $9.45 to $9.52 per share from a prior forecast of $9.40 to $9.60 per share.
For Fiscal Q3, earnings per shares excluding the costs of the Chuy acquisition came in at $2.80, in line with expectations. The reaction to the earnings was initially mixed, as shares initially sold off in the premarket on Thursday by as much as 2% before reversing sharply to trade up 7% for the day.
In the earnings call with analysts CFO Raj Nand indicated that of the 20% of products that it imports, it could replace most of those “easily” with domestic produce.
DRI-UBER Tie Up
Darden also announced today that Cheddar’s Scratch Kitchen is the next of its brand to pilot on-demand delivery with Uber (UBER). It is currently conducting a pilot in 10 restaurants, enabling customers to order delivery directly through the Cheddar’s website and app, while Uber Direct will handle deliveries.
“We learned a lot from the initial pilot at Olive Garden, and that, combined with the success of the full rollout, gave us confidence to quickly move to piloting delivery at Cheddar’s,” said Chris Chang, Chief Information Officer at Darden.
Is DRI a Good Stock to Buy?
On Wall Street, analysts have a Strong Buy consensus rating on DRI stock, based on ten Buys and two Holds. The average DRI price target of $209.67 implies about 11% upside from current levels, though figures may be adjusted after the earnings report.
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