Darden Reports Weaker-Than-Expected First Quarter
Darden’s impressive momentum slipped a bit Tuesday as the company reported weaker-than-expected numbers in the first quarter, sending shares of the Olive Garden and LongHorn Steakhouse parent down 3.4 percent in premarket trading. They were down nearly 6 percent to $78.25 early Tuesday.
The company’s overall same-store sales at restaurants open at least a year grew 1.7 percent, which missed Wall Street’s prediction of 2.1 percent. That tally didn’t include Cheddar’s Scratch Kitchen, Darden’s newest brand, which it purchased for $780 million in April.
In regards to Cheddar’s, the chain saw its same-store sales decline 1.4 percent in its first full-quarter review under Darden’s umbrella. That’s a reversal from the first five weeks following the deal’s close, where comps grew 1.3 percent.
The acquisition did boost Darden’s total sales significantly. The company reported an increase of 12.9 percent to $1.94 billion, including 11.2 percent growth from the addition of Cheddar’s 141 restaurants, as well as 21 other net new openings.
Darden’s profit aligned with Wall Street. Net income for the first quarter rose to $119 million, or 93 cents per share, from $110.2 million, or 87 cents per share, year-over-year. Adjusted earnings per share were 99 cents, which also met the FactSet consensus.
Revenue increased to $1.936 billion from $1.71 billion, slightly above FactSets’ prediction of $1.93 billion and Thomson Reuters’ $1.931 billion estimate.
“Our focus on simplifying operations and providing an excellent value for our core consumer continues to yield strong sales growth," CEO Gene Lee said in a statement. "The teams continue to make appropriate investments in their brands and manage costs effectively. These actions have enabled Darden to outperform the industry."
A closer look at Darden’s same-store sales showed a mixed bag. Olive Garden’s 1.9 percent growth was short of analysts’ expected 2.5 percent boost. While sales missed expectations and were lower than the 4.4 percent rise in the fourth quarter, the movement is still healthy considering how strong the brand has been in recent quarters.
Olive Garden, which had 847 company-owned units as of August 27, has reported positive growth for 12 consecutive quarters—an enviable track record in the today’s casual dining environment. Bahama Breeze, a 38-unit Darden chain, also missed Wall Street marks with same-store sales gains of 1.2 percent.
LongHorn Steakhouse, though, beat expectations with a 2.6 percent rise in comps. The 491-unit chain enjoyed a 3.5 percent boon in the last quarter and has now grown for 18 straight.
Same-store sales at The Capital Grille (56 units) were up 2 percent in the first quarter; Eddie V’s (19 units) saw a 2.5 percent increase; Yard House (68 units) fell 4 percent; and Seasons 52 (41 units) declined 2.2 percent.
Darden reaffirmed its 2018 outlook, which calls for same-store sales to grow 1–2 percent. The company sees full-year earnings to be in the range of $4.38–$4.50. This outlook does include the impact from hurricanes Harvey and Irma.
This report comes after Darden blew past expectations in the fourth quarter. The company’s report showed same-store sales gains of 3.3 percent for restaurants open at least a year versus the prior-year period, which sent shares to an all-time high of 95.22.