Darden Restaurants Earnings Preview: EPS, Sales Growth Expected

Darden Restaurants

, which is trading near a multiyear high, is scheduled to report its first-quarter fiscal 2013 results Friday, August 21 before market open. Investors will be looking to see whether the fortunes of the Olive Garden chain have improved and the company can build on four-straight revenue increases.

Analysts on average predict that Darden will report per-share earnings of $0.84 for the quarter, as well as about $2.0 billion in revenue. In the same period of last year, the company reported a profit of $0.78 per share and $1.9 billion in revenue. The consensus earnings per share (EPS) estimate has not changed in the past 60 days. And Darden has not fallen short of analysts' expectations in the past eight quarters. Fourth-quarter EPS were in line with the consensus estimate. The company attributed a fourth-quarter revenue miss on, among other things, weak same-store sales at its Olive Garden chain and "unusually high seafood cost inflation." CEO Clarence Otis, Jr. warned, "the business environment in fiscal 2013 will be similar to that in fiscal 2012." However, the board increased the quarterly dividend by 16 percent. Darden's share price slipped about 1.7 percent in the days following the report. Looking ahead to the current quarter, the consensus forecast calls for year-over-year growth of both EPS and revenue. And so far, analysts expect full-year per-share earnings growth of about 6.7 percent, as well as for revenue to be about 9.3 percent higher than in the previous year.

Darden Restaurants operates approximately 2,000 restaurants under the Red Lobster, Olive Garden, LongHorn Steakhouse, Capital Grille and other banners. It is an S&P 500 component headquartered in Orlando, Florida, and it has with a market capitalization of more than $7 billion. It was founded in 1968, and Clarence Otis Jr. has been the chief executive since 2004. Competitors include Brinker International

, operator of the Chili’s Grill & Bar and Maggiano's Little Italy chains, and DineEquity

, parent of Applebee's and International House of Pancakes. For the current quarter, the Brinker is expected to post modest year-over-year EPS and revenue growth, while lower EPS and sales are anticipated from DineEquity. During the three months that ended in August, Darden saw two new board members, tested combo Olive Garden/Red Lobster locations and acquired Yard House USA, a 40-restaurant chain featuring contemporary American cuisine.

Darden's long-term EPS growth forecast is almost 12 percent. The price-to-earnings (P/E) ratio is lower than the industry average, and the return on equity is more than 25 percent. The company has a dividend yield of about 3.7 percent. Short interest is less than seven percent of the float. Of 30 analysts surveyed by Thomson/First Call who follow the stock, 18 rate the shares at Buy or Strong Buy. But note that their mean price target, a sign of where they expect the share price to go, is about the same as the current share price. A good earnings report may prompt some price target increases. The stock has risen nearly 23 percent since the beginning of the year, including an increase of about three percent in the past week. The share price is above both the 50-day and 200-day moving averages. Over the past six months, though, the stock has underperformed Brinker and DineEquity.