Darden Beats Zacks Estimate - Analyst Blog

Darden Restaurants, Inc. (DRI), one of the world’s largest casual dining restaurant operators, recently posted better-than-expected third-quarter 2010 results and lifted its earnings guidance on the heels of improving sales trend and traffic.

The quarterly earnings of 95 cents a share surpassed the Zacks Consensus Estimate of 92 cents, and climbed 21.8% from 78 cents delivered in the prior-year quarter. On a reported basis, including one-time items, earnings came in at 94 cents, up 20.5% year-over-year.

The owner of the Red Lobster and Olive Garden chains said that it now expects fiscal year 2010 earnings per share to rise between 8% and 10% from $2.65 delivered in fiscal 2009. This translates into a profit range of $2.86 to $2.92 per share for fiscal 2010. Earlier, Darden expected an earnings growth range of 5% to 8% (or $2.78 to $2.86 per share). The current Zacks Consensus Estimate for fiscal 2010 is $2.87.

Total sales for the quarter rose 4.2% to $1,874 million, as blended comparable restaurant sales climbed 1.3%, the first positive growth witnessed in nearly two years, and also substantial improvement over the declines of 4.7% and 5.3% experienced in the second and first quarters of 2010, respectively.

The comps also fared better than the 4.3% decline for the Knapp-Track benchmark of U.S. comparable restaurant sales, excluding Darden. For 2010, the company now expects comps to decline by 2.5%.

By restaurant concepts, Olive Garden’s sales jumped 5.2% to $870 million driven by the net opening of 31 new restaurants and 1.5% growth in comps. Sales at Red Lobster inched up 1.9% to $655 million driven by a 0.9% increase in comps and the addition of four net new restaurants. At LongHorn Steakhouse, sales rose 4.5% to $238 million driven by a 1.9% growth in comps and net opening of 8 new restaurants.

Sales at The Capital Grille soared 13.7% to $69 million due to the addition of five net new restaurants, partially offset by a 1.9% decline in comps. At Bahama Breeze, sales climbed 3.1% to $29 million, reflecting the addition of one net new restaurant, partly offset by a 0.6% fall in comps.

Restaurants in the casual dining segment are grappling with sagging comps and waning traffic with cash strapped consumers shifting to lower-priced dining options or eating at home. Casual dining operators such as, California Pizza Kitchen Inc. (CPKI) and Brinker International, Inc. (EAT) witnessed a 5.8% and 3.1% decline in comparable restaurant sales in the most recent quarter.

Darden ended third-quarter 2010 with cash and cash equivalents of $260.3 million, total long-term debt of $1,634.8 million and shareholders’ equity of $1,843.8 million.