Darden Restaurants, Inc. (DRI) recently reported better-than-expected first quarter 2010 results. Despite a low-single digit fall in the top-line, the company posted a double-digit growth in the bottom-line.
Darden’s quarterly earnings of 67 cents a share surpassed the Zacks Consensus Estimate of 65 cents, and climbed 15.5% from 58 cents reported in the prior-year quarter.
Lower food and beverage costs (down 8.5% year-on-year) and fall in restaurant expenses (down 7.2%), partially offset by rise in labor costs (up 1.7%) and higher depreciation and amortization expenses (up 6.0%) drove the earnings.
Management expects earnings per share (EPS) for the fiscal year 2010 in the range of $2.59 to $2.85. However, Darden added that given the macro-economic conditions, its earnings could be at the lower end of its forecast.
Revenue for the quarter slipped 2.3% to $1,734 million, as blended comparable restaurant sales fell 5.3%. However, comps fared better than the 7.8% decline for the Knapp-Track benchmark of U.S. comparable restaurant sales excluding Darden. For the fiscal year 2010, comps are expected in the range of -3.0% to flat, and total sales growth in the range -2% to +1%.
By restaurant concepts, Olive Garden’s sales jumped 1.2% to $821 million driven by the net opening of 33 new restaurants, partially offset by 2.9% fall in comps. Sales at Red Lobster dipped 6.3% to $605 million due to 7.9% decline in comps, partly offset by the addition of 11 net new restaurants. At LongHorn Steakhouse, sales tumbled 2.0% to $211 million, driven by 6.2% decline in comps, partially offset by revenue from 14 net new restaurants opened.
Sales at The Capital Grille fell 8.4% to $50 million on the back of 18% decline in comps, partly offset by the addition of five net new restaurants. At Bahama Breeze, sales declined 1.5% to $35 million with a 6.3% fall in comps, offset to some extent by the addition of one net new restaurant.
Darden, which operates in the casual dining segment, now expects to open 50 to 55 net new restaurants in fiscal year 2010, drastically down from 71 restaurants opened in the last fiscal year. Given the turbulent economy, we believe it is wise to move steadily, rather than aggressively.
Restaurants in the casual dining segment are experiencing sagging comps and declining traffic with cash strapped consumers shifting to low-priced dining options or eating at home. Other operators in the segment are California Pizza Kitchen (CPKI), Red Robin Gourmet Burgers (RRGB) and Brinker International (EAT).
Darden ended the quarter with cash and cash equivalents of $79.4 million with a long-term debt of $1,633.7 million, representing debt-to-capitalization ratio of 50.3%.
Read the full analyst report on “DRI”
Read the full analyst report on “CPKI”
Read the full analyst report on “RRGB”
Read the full analyst report on “EAT”
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