Restaurant stocks are always a hot favorite among people as there are lots of opportunities. A great player playing well in this industry is Darden Restaurants Inc. (DRI, Financial).
The restaurateur posted excellent quarterly results, including a 6.74% increase in total sales. The company has also launched catering delivery nationwide.
Darden Restaurants, the full-service restaurant company, owns and operates more than 1,500 restaurants. The company operates in four segments:
- Olive Garden.
- LongHorn Steakhouse.
- Fine Dining (The Capital Grille, Eddie V's Prime Seafood).
- Other Business (Yard House, Bahama Breeze and Seasons 52).
Through subsidiaries, Darden Restaurants owns and operates all of its restaurants in the U.S. and Canada except for three restaurants in Florida and three in California, which are owned jointly by the company and third parties and managed by the company, seven franchised restaurants in Puerto Rico and an Atlanta airport location.
Strong third-quarter results
On April 5, the Orlando, Florida-based company reported financial results for the third quarter ended Feb. 28. The company’s total sales from continuing operations increased 6.74% to $1.85 billion, compared to $1.73 billion in last year's fourth quarter. Diluted net earnings per share (on a reported basis) from continuing operations decreased 16.8% to 84 cents primarily due to the early retirement of debt. Further, adjusted diluted net earnings per share from continuing operations increased 22.2% to $1.21, compared to 99 cents for the comparable prior-year period.
Darden Reataurants’ general and administrative expenses for the reported quarter increased 10.18% to $95.2 million, compared to $86.4 million in the year-ago quarter. The company’s same-restaurant sales for the quarter increased 6.2%.
The company ended the quarter with cash and cash equivalents of $215.8 million. Long-term debt, less current portion decreased sharply by 69.72% to $439.7 million, compared to $1.45 billion in last year's fourth quarter.
Segments’ performance
| Ă‚ | Total sales | Segment profit | ||
| Figures ($ millions) | % change (Compared to the year-ago quarter) | Figures ($ millions) | % change (Compared to the year-ago quarter) | |
| Olive Garden | $1,019.8 | 6.55% | $220.1 | 9.28% |
| LongHorn Steakhouse | $425.5 | 5.37% | $85.0 | 25.98% |
| Fine Dining | $146.0 | 5.41% | $33.9 | 9.71% |
| Other Business | $256.2 | 10.67% | $42.3 | 8.46% |
Olive Garden is a leading casual dining brand and Italian food service concept in the U.S. Darden Restaurants has taken several steps, such as holistic core menu and promotion plan, a new approach to advertising and promotion, robust service strengthening path and an exciting new remodel and logo direction. All these strategies have helped the company provide positive results.
Dividend and share repurchase
During the quarter, Darden Restaurants repurchased approximately 2.3 million shares of its common stock for a total cost of approximately $140 million, which leaves approximately $360 million under the $500 million repurchase authorization. Further, the company has returned more than $200 million to shareholders through dividends and share repurchases.
Projections for fiscal 2016
Based on the recent performance, the company has increased the outlook for fiscal 2016. Same-restaurant sales are expected to be in the range of 3.0% to 3.5%, and adjusted earnings per diluted share in the range of $3.48 to $3.52, an increase of between 36% and 38% from fiscal 2015, on a 52-week basis. The updated adjusted earnings per diluted share excludes real estate implementation and debt retirement costs.
The company expects its total capital expenditure for fiscal 2016 will be in the range of $230 million to $250 million, and further plans to open 18 to 22 new restaurants.
For fiscal 2017, Darden Restaurants plans to open 24 to 28 new restaurants and expects its total capital expenditure in the range of $310 million to $350 million.
Initiatives taken
To strengthen its customer base, Olive Garden recently announced it has added catering delivery to the menu at all restaurants in the U.S. and Canada. This will help guests have their favorite Italian meals and breadsticks delivered for family gatherings, office parties and more.
On March 8, Olive Garden partnered with Feeding America to help families in need. This partnership will add 5.5 million more meals to help families facing hunger in communities across the country.
Management
Recently, Darden Restaurants announced the resignation of Jeffrey C. Smith from its board of directors and the election of Charles M. Sonsteby, an independent director, as chairman.
(Source: company website)
A peek into the restaurant industry
According to reports, the U.S. economy surged by 5% in the third quarter of 2014 (since 2003, this has been the strongest three-month period). Consumer behavior has changed and so the restaurants have come up with different marketing strategies – loyalty programs, ordering, etc.
As per the National Restaurant Association, restaurant industry sales are expected to reach $783 billion in 2016 and will represent the seventh consecutive year of real growth in restaurant sales. Further, the National Restaurant Association has predicted that the restaurant industry will remain the nation’s second-largest private sector employer with a workforce of 14.4 million and will create 1.7 million new restaurant jobs by 2026.
On a concluding note
Overall Darden Restaurants is a rock-solid company with solid stock price performance, strong revenue growth, reasonable valuation levels, increase in net income and a remarkable record of earnings per share growth.
Further, Olive Garden and LongHorn Steakhouse have provided their sixth and 12th consecutive quarters of same-restaurant sales growth. The company as a whole has also provided six straight quarters of double-digit adjusted EPS growth. With the recent quarterly release, the company is aiming for a better future and is all set to deliver a healthy menu to its investors. It is expected to create greater shareholder returns.
Disclosure: I do not hold any position in the company.
