Darden Restaurant (DRI, Financial) recently reported solid second quarter results. Darden is an established brand with more than 1700 restaurants serving around 380 million guests a year. The company boasts of a portfolio of differentiated brands including Olive Garden, LongHorn Steakhouse, Cheddar's Scratch Kitchen and Yard House.
There was a rise in revenues during the quarter (an increase of 14.6% year over year) due to the acquisition of 153 Cheddar’s Scratch Kitchen and 28 other net new restaurants. The second quarter was marked by same-restaurant sales growth of 3.1%. The company gained due to same-restaurant sales and new restaurant growth. There was an overall increase in the food and beverage costs with the rise in operating cost and expenses.
It upgraded the fiscal 2018 adjusted EPS guidance to $4.45 to $4.53 (previously it was $4.38 to $4.50). It also plans to open 40 new restaurants in the coming year. The quarter was marked by an increase in sales across all the segments.
Quarterly performance
The company repurchased around 1.1 million shares of its common stock at a total cost of approximately $89 million.
Total sales during the quarter increased by 14.6% and were $1.88 billion.
Reported diluted net earnings per share from continuing operations increased by 10.9% and were 71 cents.
Adjusted diluted net earnings per share from continuing operations increased by 14.1% and was 73 cents.
Cash and cash equivalents during the quarter was $114.7 million (a decrease from $146.8 million in the previous quarter).
Total inventories as of the quarter were $199.1 million.
Net earnings during the quarter were $84.7 million, which marked an increase of 6.5% from the prior year quarter.
Total operating cost and expenses increased to around $1.7 billion.
Operating income during the quarter increased to $128.9 million.
Brand performance
LongHorn Steakhouse: Sales increased by 6.2% and was $387.7 million. Comps increased by 3.8% from 2.6% in the prior year quarter.
Other Business: Revenues increased by 75.5% year over year and were $401.6 million. Comps at Yard House increased by 2%. Bahama Breeze also witsesed comps growth of 2.5%.
Fine Dining: Sales during the quarter increased by 9.3% and were $140.6 million. Comps at The Capital Grille increased by 3.8%. Eddie V's also witnessed comps growth of 6.8%.
Revenues increased by 4% year over year and were $951.6 million at Olive Garden. Comps increased by 3% at the segment.
Expectations for Fiscal 2018
| Metrics | Range |
| Same-restaurant sales growth | Around 2% |
| Effective Tax Rate | Around 25% |
| Total sales growth | Around 13% |
| New restaurant openings | Around 40 |
Focus
- Integrated marketing
- Culinary innovation
- Creating shareholder value
- Building guest loyalty
- Disciplined and profitable new restaurant growth
Concluding note
2017 has been a good year for the company as it kept on delivering. The restaurant industry is highly competitive and Darden is successfully outperforming its peers. It boasts of more than $600 million in sales and $70 million in adjusted EBITDA. In addition, this company is expected to provide synergic benefits as well as further catalyst to Darden’s growth.
The company is doing well now and has been returning value to the shareholders. It recently declared dividend of 63 cents per share on its outstanding common stock. The dividend is payable on Feb. 1, 2018. It has already returned around $280 million in dividends and $230 million in share repurchases. The company is performing decently at a time when the restaurant industry is witnessing many changes. Adding this company may reap shareholder returns.
Disclosure: I do not hold any position in the company.
