Darden Restaurants Inc. (DRI, Financial) revealed astounding results for the third quarter of fiscal 2015 with estimate-beating earnings and revenue that just fell in line with the Street estimates. The company registered 39% year-over-year growth in earnings to $0.99 a share from continuing operations, beating the consensus estimate of $0.84 a share. Moreover, Darden’s 6.9% year-over-year revenue growth to $1.73 billion for the third quarter just met the consensus estimate of $1.73 billion. Following the upbeat results, Darden shares were up over 4.25% to a new 52-week high of $67.74 during the day’s trading. Let’s find out the major highlights of the quarter’s report card.
Growth in comparable-store sales across segments boosts Revenue
Darden Restaurants reported net income of $133.8 million for the third quarter, resulting in non-GAAP earnings of $1.01 per share compared to the year-ago quarter’s net income of $109.7 million or $0.82 per share. The company attributed its growth to lower interest costs and higher revenues as well as comparable-store sales. Darden, which operates with restaurant chains including The Specialty Restaurant Group, LongHorn Steakhouse and Olive Garden, had divested its Red Lobster chain in Jul 2014 in a $2.1 billion deal. The company’s efforts to develop and grow its chains resulted in a 3.6% growth in comparable-store sales during the quarter.
Segment wise, Darden saw 11.4% growth in revenues to $404 million at LongHorn Steakhouse. With 25 net new restaurants, comparable-store sales at LongHorn Steakhouse grew 5.4% bettering the prior-year quarter’s growth of 2.6%. Concurrently, The Specialty Restaurant Group witnessed growth of 14.7% to $367 million in sales, while sales at Olive Garden grew 3% year-over-year to $975 million on the back of a 2.2% growth in comparable-store sales and opening of 9 new restaurants. Darden also registered comparable-store sales growth of 6.1% at The Capitol Grille and 9.6% at Eddie V’s on the back of personalized services as well as innovative culinary offerings. The company’s other restaurant chains such as Bahama Breeze, Yard House and Seasons also saw growth in comparable-store sales of 3.2%, 5.4% and 5.2%, respectively.
Dividend pay-out in queue
Darden, which competes with businesses such as Brinker International Inc. (EAT, Financial) and DineEquity Inc. (DIN, Financial) in the restaurants market, also announced a quarterly cash dividend of $0.55 a share on its outstanding common stock, payable in May 2015. This shows the interest of Darden in improving shareholder value by regular dividend payouts.
Upbeat outlook for fiscal 2015
Following robust third quarter results for fiscal 2015, Darden increased its earnings outlook for the fourth quarter as well as full fiscal 2015. The company now expects adjusted earnings from continuing operations to be in the range of $2.45-$2.48 per share, as against the previous expectation of $2.25-$2.30 per share for the full year. While the revised guidance indicates a 43%-45% year-over year growth in earnings and a 2%-2.5% growth in same-restaurant sales, it is also higher than the analysts’ consensus estimate of $2.30 a share.
For the fourth quarter, Darden projects 69%-74% growth in earnings from continuing operations in the range of $0.91-$0.94 per share, beating the consensus estimates of earnings at $0.89 per share for the fourth quarter.
Final thoughts
Darden Restaurants reported robust growth in both sales and earnings for the third quarter of 2015 and followed it with a quarterly cash dividend of $0.55 a share that is bound to please investors. Moreover, the company’s growth is anything but sporadic, with comparable-store sales growing across all its segments, specially the Olive Garden brand that saw its second consecutive quarter of positive growth since Q4 of 2013. Experts foresee an average annual earnings growth rate of 13%-14.5% for Darden over the next five years, with a 35% earnings growth for fiscal 2015 compared to the company’s revised target of 43%-45% growth. The Darden shares currently carry a "hold" guidance, with investors doing well to wait and watch how the company’s upbeat forecast pans out in the next quarter.
