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Darden's (DRI) Q3 Earnings to Ride on Sales Building Efforts

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Darden Restaurants, Inc. DRI is set to report third-quarter fiscal 2018 results on Mar 22, before the market opens.

Cheddar’s acquisition along with various sales boosting initiatives across its brands are expected to benefit Darden’s third-quarter fiscal 2018 revenues. Also, efficient cost-containment efforts are likely to grow margins and the company’s bottom line.

Notably, Darden’s shares have rallied 23% in the past year, outpacing its industry’s gain of 14.9%.

Let’s find out how the company’s to-be-reported quarter’s results will turn out.


Top Line to Gain from Acquisition & Sales Building Efforts

Darden’s revenues are expected to increase year over year in the to-be-reported quarter driven by various initiatives that include simplifying kitchen systems, operational excellence to enhance guest experience, menu innovation and other technology-driven moves.

The Zacks Consensus Estimate for the quarter’s net sales is pegged at $2.15 billion, reflecting 14.5% year-over-year growth. Also, in the first two quarters of fiscal 2018, Darden witnessed year-over-year sales growth of 13.7%.

Olive Garden is likely to grow from the prior-year quarter on Brand Renaissance Plan and the To Go business that offer online ordering at selected locations. The brand is particularly focusing on remodeling and bar refreshes. The revamped restaurants are already generating high same-restaurant sales and returns.

In fact, supported by these initiatives, Olive Garden posted the 13th consecutive quarter of positive comps in second-quarter fiscal 2018. Expecting this forward trend to continue, the consensus estimate projects comps growth of 0.02% in the to-be-reported quarter.

Comps at LongHorn are expected to grow year over year owing to culinary innovation in the segment. Darden is also working on a marketing strategy to improve execution, customer relationship management and digital advertising. Further, the company continues to focus on strengthening its in-restaurant execution through strategic investments in quality.

Owing to these efforts, segment comps have been growing since the past 19 consecutive quarters and are likely to continue in the to-be-reported quarter as well. The consensus estimate for the segment’s third-quarter comps is projected to grow 0.3%.

Meanwhile, the acquisition of Cheddar’s seems to be a great fit in the company’s portfolio as it not only complements its existing brands but is also expected to aid in attracting customers, given its extensive appeal. In the fiscal second quarter, total sales were favored by the addition of 153 Cheddar’s and 28 other new restaurants.

Segmental sales also improved owing to Cheddar’s integration in the Other Business segment. Synergies from the buyout of Cheddar’s are expected to continue favoring the segment’s revenues in the to-be-reported quarter as well.

Cost-Saving Efforts to Favor Bottom Line

Darden has an aggressive cost management plan, under which it has significantly cut operating costs. In fact, for fiscal 2018, the company expects 10-40 basis points year-over-year margin expansion as a result of cost savings.

The company’s cost cutting is likely to favor earnings growth in the to-be-reported quarter. The consensus estimate for third-quarter earnings is pegged at $1.64, mirroring 24.2% year-over-year growth.

Our Quantitative Model Suggests a Beat

According to our quantitative model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has a fair chance of beating estimates. Meanwhile, stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) are best avoided.

Darden has a Zacks Rank #2 and an Earnings ESP of +0.76%, a combination that increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Darden Restaurants, Inc. Price and EPS Surprise

Darden Restaurants, Inc. Price and EPS Surprise | Darden Restaurants, Inc. Quote

Stocks to Consider

Here are some restaurant companies that according to our model possess the right combination of elements to post an earnings beat this quarter:

Sonic Corp. SONC has an Earnings ESP of +14.08% and a Zacks Rank #3. The company is scheduled to report quarterly results on Mar 27, 2018. You can see the complete list of today’s Zacks #1 Rank stocks here.

Brinker International EAT has an Earnings ESP of +1.92% and a Zacks Rank #3. The company is expected to report quarterly numbers on Apr 24, 2018.

Starbucks SBUX has an Earnings ESP of +0.44% and a Zacks Rank #3. The company is expected to report quarterly results on Apr 26, 2018.

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