Darden Restaurants (DRI +2%) is seeing a modest rise in its stock today after concluding FY24 on a positive note. The company, which operates Olive Garden, LongHorn Steakhouse, and Ruth's Chris, reported better-than-expected EPS and revenue for Q4 (May). Additionally, it raised its dividend by 6.9% to $1.40 per share.
- It's reassuring to see Darden (DRI, Financial) report EPS upside after a rare miss in Q3 (Feb). The stock had been declining since that miss in March, causing investor anxiety. The Q3 report also included some cautionary comments, so the modest Q4 upside likely calmed fears of consecutive misses.
- Regarding same-restaurant sales, Darden (DRI) reported flat consolidated comps: Olive Garden at -1.5%, LongHorn Steakhouse at +4.0%, Fine Dining at -2.6%, and Other at -1.1%. These figures are slightly better than Q3 comps of -1.0%. Despite flat overall comps, Darden outpaced the industry by 80 basis points and exceeded industry guest counts by 130 bps. This is notable given the increased discounting and promotional activity by competitors.
- Darden (DRI) provided FY25 comp guidance of +1-2%, similar to FY24's +1.6%. The company saw some weakness in the latter half of FY24, affecting FY25 guidance. However, Darden expects traffic to improve gradually throughout the year. The shift of Thanksgiving from Q2 to Q3 will also impact quarterly comps.
- Consumers are increasingly concerned about inflation and the job market, leading to behavior shifts. Darden (DRI) noted a decline in transactions from lower-income consumers, particularly those earning below $50,000. This impact was more pronounced in Fine Dining brands.
Overall, this was a solid quarter for Darden (DRI). The stock had already priced in some negativity, as seen in its decline since the Q3 report. Investors were likely pleased with the return to EPS upside and flat comps after a rare negative comp in Q3. The +1-2% comp guidance for FY25 is also acceptable, and the significant dividend hike indicates management's confidence. With the stock pullback and dividend raise, investors now enjoy a yield of 3.6%.
