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The Street Debates Darden's Earnings: Low Bar Set For Guidance?

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The Street Debates Darden's Earnings: Low Bar Set For Guidance?

Olive Garden parent company Darden Restaurants, Inc. (NYSE: DRI) on Thursday reported fourth-quarter results. Earnings of $1.76 per share beat the analyst consensus estimate of $1.72, while quarterly sales of $2.23 billion missed the consensus estimate of $2.24 billion.

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

Baird's David Tarantino maintains a Neutral rating on Darden Restaurants' stock with an unchanged $117 price target.

Morgan Stanley's John Glass maintains at Equal-weight, price target lowered from $121 to $120.

Wedbush's Nick Setyan maintains at Neutral, price target lifted from $125 to $130.

BMO Capital Markets' Andrew Strelzik maintains at Underperofrm, unchanged $97 price target.

Shares of Darden traded higher Thursday and that momentum continued in Friday's session, with the stock up another 2% to $121.06 per share at time of publication.

Baird: 'Somewhat Disappointing'

Darden's end to fiscal 2019 was "somewhat disappointing" compared to high-quality beats seen in recent quarters, Tarantino wrote in a note. EPS beat estimates but revenue growth missed. Blended comps of 1.6% missed estimates of 2.4% and EBIT margin growth of nine basis points missed estimates of 40 basis points growth.

On a blended basis, Darden's same-store sales decelerated by 120 basis points from the prior quarter's 2.8% growth although this is in line with industry-wide trends, the analyst said. Looking forward to 2020, management's EPS guidance of $6.30 to $6.45 missed expectations of $6.46 and a revenue growth outlook of 5.3% to 6.3% missed expectations of 6.9% growth.

Related Link: Bon Appétit: The Street Has Mostly Bullish Reaction To Darden's Q3

Morgan Stanley: 'Softer' Finish To 2019

Darden's multiple restaurant brands remain peer-leaders but the company's earnings report was "softer than what investors had to come to expect," Glass wrote in a note. The company was negatively impacted by a combination of industry softness and company-specific strategy shifts, including a move to be less promotional at Olive Garden.

Management's guidance likely factors in expectations for higher inflation, a lower and back-end loaded unit growth and depreciation, the analyst said. This creates a difficult scenario for the company to exceed expectations.

Wedbush: Low Bar Set For 2020

Management's guidance calls for a same-store sales growth of 1% to 2% and 44 net new store openings, which Setyan said looks like conservative outlook. Olive Garden's status as an "everyday value" destination remains unchanged and ongoing marketing campaigns, growth in off-premise sales and company initiatives should serve as drivers of comp growth.

Darden's LongHorn chain should also see comps mostly driven by check size as the company should be able to implement higher menu costs and hold on to traffic trends. As such, Setyan said the company should end the year with an EPS at the high end of guidance.

BMO: Not A Low Bar For 2020

Darden's "disappointing and lower-quality" report compared to its recent positive track record was followed up with a 2020 guidance that doesn't look to be conservative, Strelzik wrote in a note. Specifically, margins expanded in fiscal 2019 by just 20 to 25 basis points and would need to expand another 30 points in 2020.

The company's performance in 2020 will be up against commodity inflation and fewer benefits from a favorable menu mix versus 2019, according to the analyst. Also, management's blended comp guidance is above Darden's company-wide 2020 guide.

Latest Ratings for DRI

DateFirmActionFromTo
Jul 2019Initiates Coverage OnOverweight
Jul 2019DowngradesBuyHold
Jun 2019DowngradesOverweightEqual-Weight

View More Analyst Ratings for DRI
View the Latest Analyst Ratings

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