A Longhorn Steakhouse restaurant in Thornton, Colorado, U.S., on Friday, March 19, 2021. Darden Restaurants Inc. is set to release its earnings figures on March 25.
Chet Strange | Bloomberg | Getty Images
Darden Restaurants reported quarterly earnings yesterday, surpassing the expectations of Wall Street analysts, mainly due to strong sales at LongHorn Steakhouse.
However, investors were disappointed by Darden’s forecasts for fiscal year 2024. Darden expects adjusted earnings per share from continuing operations to be between $8.55 and $8.85, while analysts had projected earnings of $8.79 per share for the year.
As a result, the company’s stock fell over 3% in morning trading. Prior to the earnings report, the stock had been approaching its all-time high of $168.98, achieved on June 15, 2020.
Here’s a breakdown of what Darden reported compared to Wall Street expectations:
- Earnings per share: $2.58 vs. $2.54 expected
- Revenue: $2.77 billion, meeting expectations
In the fourth quarter of the fiscal year, Darden reported a net income of $315.1 million, or $2.58 per share, an increase from $281.7 million, or $2.24 per share, in the same period the previous year. Net sales also rose by 6.4% to reach $2.77 billion.
LongHorn Steakhouse was the primary driver of Darden’s success, with same-store sales increasing by 7.1%, surpassing estimates of 4.9% growth. However, Olive Garden, which comprises almost half of Darden’s sales, fell short of expectations with same-store sales growth of 4.4%, below the projected 5% growth.
The fine dining segment of Darden, which includes The Capital Grille and Eddie V’s, experienced a decline in same-store sales of 1.9%. Although the segment has seen a significant increase in traffic compared to 2019, it still faces challenging comparisons to the surge in demand experienced a year ago.
“We anticipate the fine dining sales to stabilize on a year-over-year basis after the first quarter,” said CFO Raj Vennam during the company’s conference call with investors.
In the next quarter, Darden’s fine dining options will include Ruth’s Chris Steak House, which the company recently acquired for $715 million. However, the results for this quarter do not include Ruth’s Chris, as the acquisition was completed on June 14, 2021.
For fiscal year 2024, Darden expects net sales of $11.5 billion to $11.6 billion, same-store sales growth of 2.5% to 3.5%, and adjusted earnings per share from continuing operations of $8.55 to $8.85. These figures exclude approximately 34 cents per share, after tax, of expenses related to the integration of Ruth’s Chris. The rest of the forecast includes the operating results of Ruth’s Chris.
In response to rising costs, particularly in labor, Darden anticipates a total inflation rate of 3% to 4% and plans to raise menu prices by 3.5% to 4%. The company also announced that former CEO Gene Lee will step down as chair of the board, as he plans not to stand for reelection at the upcoming annual shareholders meeting on September 20.
“I am proud of what we have achieved, and I believe that Darden is well-positioned for future growth and prosperity,” said Lee in a statement.
