Darden Restaurants Inc. (DRI) recently announced its projections for third quarter fiscal 2012. Management is hopeful of seeing impressive numbers ahead, thanks to a shift in the Lenten season, which started during the fiscal third quarter this year but during the fiscal fourth quarter last year, as well as a less severe winter this year. Same-store enjoyed a respective 70 and 200 basis point benefit from the Lenten shift and a comfortable winter.
The company now expects earnings per share from continuing operations to remain $1.23 to $1.25 in the third quarter of fiscal 2012. The company also projected blended U.S. same-restaurant sales (comps) for Olive Garden, Red Lobster and LongHorn Steakhouse to increase around 4% and blended U.S. comps for the Specialty Restaurant Group for the third quarter to increase approximately 6% year over year.
Individually, U.S. comps for the third quarter are estimated to be up around 7% at LongHorn Steakhouse, 6% at Red Lobster and 2% at Olive Garden. We believe, Olive Garden, which was badly hit in the second quarter, responded to the initiatives Darden took this quarter and delivered positive comps. However, comps at Red Lobster stole the show this quarter as its national LobsterFest feature tied to the Lenten season gained an incremental 190 basis points due to the shift in the season.
Management expects solid earnings growth in the second half of 2012 and estimates blended comps to range from 2.5% to 3.0% for 2012. The company expects total sales growth of 7.0% to 7.5% in fiscal 2012. Earnings per share guidance from continuing operations were also reiterated at a growth of 4-7% year over year.
Agreement – Estimate Revisions
Following the good news, 14 out of 16 analysts increased their estimates for the upcoming quarter while none moved southward. Estimates were upped from $1.19 to $1.23 per share in the last 7 days.
However, on the flip side, cost inflation will continue to foul play. Management expects beef cost to spike 12% during the fiscal year that starts May 28, while chicken will see a 2% rise. However, dairy prices and seafood costs will be under control and will likely see a modest decline going forward. Food and beverage inflation is forecast at 0.5% to 1.5%.
Darden, which competes with Kona Grill Inc. (KONA) and Brinker International Inc. (EAT), currently retains a Zacks #2 Rank that translates into a short-term Buy rating.
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