Darden Restaurants’ Profits Rise, Despite Troubles At Olive Garden

Darden Restaurants’ Profits Rise, Despite Troubles At Olive Garden
By . The original uploader was Kalel2007 at English Wikipedia (Source: Extracted from a PDF file by Kalel2007) [Public domain], via Wikimedia Commons

Darden Restaurants, Inc. (NYSE:DRI), a company that is all too synonymous with the 2000 plus restaurants that it owns and runs, on Friday, shared insights from its earnings, noting that Q1 net income had risen 4 percent. Darden also noted that despite the rise in net income, it was still struggling to deliver a rosier top line in Red Lobster and Olive Garden chains, both of which are flagship chains.

Darden Restaurants' Profits Rise, Despite Troubles At Olive Garden

For the quarter ending on August 26th, Darden Restaurants, Inc. (NYSE:DRI) noted that it earned $110.8 million, or $0.85 per share-4 percent higher than the previous year’s $106.6 million.

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The 4 percent leap in net income tramples on Wall Street estimates and highlights the bullishness that has since consumed the company. A FactSet survey actually reveals that a huge section of analysts were fixed on earnings of 83 cents a share.

At the popular Red Lobster chain, sales at restaurants that have been operating for at least a year dipped 2.6 percent, as traffic reduced. Over at Olive Garden, Darden’s biggest chain, the company has been struggling to increase sales through revising its marketing message and modifying, as well as expanding its menu. Traffic also reduced considerably at most of the Olive Garden’s outlets, signaling an overall decrease in traffic during the quarter.

The sales metric is considered to be a key health indicator, primarily because it stamps out the effects of recently closed and newly opened locations. In addition to that, it helps concerned parties to reflect on the company’s revenue, and establish how much of it is actually converted into profit.

Darden Restaurants, Inc. (NYSE:DRI) is particular worried about the Red Lobster chains. On comparative levels, these chains posted an overall dismal performance on a year-over-year basis. Last year, at this time, Red Lobster restaurants that had been in operation for at least one year saw a 10.7 percent leap in sales. Similarly, towards the close of last year’s first quarter, traffic also increased incredibly.

Not much of a surprise

All the same, the overall good performance does not come as much of a surprise. The company’s 2013 projections focused on a 9 to 10 percent increase in revenue. Much of which will be, and already is, traceable to the addition of more than 100 new restaurants.

In Q1, revenue rose to $2.03, representing a five percent increase on a year-over-year basis. As earlier noted, much of this increased revenue was attributable to the opening of new restaurants.

On the conference call,

Mgmt maintained FY13 EPS growth guid. of 5-9% includes 7-10c of acq costs related to Yard House) vs. the FC est of 7.3%. SSS guid. for the top 3 brands remains at +1-2%. Total sales growth is still expected to be 9-10% (assumes a 3% contribution from Yard House) vs. FC of 9%. Mgmt continues to expect approximately 100-110 net new openings in FY13, not including
Yard House. The company experienced 0.5% inflation in the Q and continues to expect 0.5-1.5% inflation for the year.

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