Darden Restaurants (DRI, Financial) reported strong second-quarter financial results with same-restaurant sales growth and reaffirmed its financial outlook.
Comps and margins increased during the quarter.
Its leading flagship brands include Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V’s and Yard House.
It is a full-service restaurant company and operates more than 1,500 restaurants.
It is one of the largest casual dining restaurant operators.
The continued success of Olive Garden is a contributory factor of this company’s success.
Its turnaround strategy for the Olive Garden chain seems to be working.
The company boasts a strong and differentiated portfolio of businesses.
Second-quarter performance
Consolidated sales during the quarter were $1.642 billion (which was an increase of 2.1% from $1.609 billion in the prior-year quarter).
Segmentwise sales
| Segments | Current quarter | Prior-year quarter |
| Olive Garden | $915.0 million | $892.3 million |
| LongHorn Steakhouse | $365.0 million | $365.1 million |
| Fine Dining | $128.6 million | $123.3 million |
| Other Business | $233.9 million | $228.1 million |
Total operating costs and expenses during the quarter decreased to $1.526Â billion ($1.527Â billion in the prior-year quarter).
Operating income during the quarter increased to $116.5 million ($81.7 million in the prior-year quarter).
Earnings from continuing operations during the quarter increased to $79.7 million ($30.1 million in the prior-year quarter).
Net earnings during the quarter were $79.5 million ($79.5 million in the prior-year quarter).
Basic net earnings per share during the quarter were 65 cents (34 cents in the prior-year quarter).
Share repurchases
During the quarter, the company repurchased around 300,000 shares for a total cost of approximately $19 million.
Dividend
The company declared a quarterly dividend of 56 cents per share. It is payable on Feb. 1 to shareholders of record at the close of business on Jan. 10.
Expectations for 2017
- Diluted net earnings per share to be between $3.87 and $3.97.
- Same-restaurant sales to be between 1.0% and 2.0%.
Focus
- Improving capital structure.
- Aggressive cost management programs.
- Supply chain optimization.
- Relentless pursuit to deliver enhanced guest experiences.
- New menu offerings.
- Impactful advertising.
Conclusion
In the fiscal year 2016, total sales increased by 4.4% and same-restaurant sales increased by 3.3% surpassing the industry by more than 400 basis points. Total sales in 2016 stood at $6.9 billion. In spite of industry headwinds, the company continues to make progress.
Since 2015, it managed $130 million in annual savings. It is ramping up the development pipeline. The company aims to increase its market share and offer best-in-class profitability. It has reduced debt from the balance sheet by about $2 billion. Most of its brands performed well for the last three or four quarters. It is focusing on a value-creating business model that will help generate significant cash flow to fund future growth and return capital to shareholders.
The restaurant industry is highly fragmented and dynamic. Perceptions have changed regarding eating out. 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.
It is focused on creating significant value for the shareholders. Headquartered in Orlando, Florida, and employing 150,000 people, Darden Restaurants returned more than $450 million in the form of dividends ($265 million) and share repurchases ($185 million). The company plans to pay out 50 to 60% of its earnings after tax as dividends. It is targeting a long-term shareholder return of 10% to 15% in the form of EPS growth and dividend yield. Adding this company will reap shareholder returns.
Disclosure: I do not hold a position in the company.
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