Shares of Darden Restaurants (DRI) rocketed higher on Wednesday after the company beat expectations on quarterly earnings and said its fiscal 2009 results would likely be better than its earlier forecast.
Darden, the world’s largest restaurant company and the operator of the Red Lobster and Olive Garden chains as well as Capital Grille, LongHorn Steakhouse, Bahama Breeze and Seasons 52, said it earned 80 cents per share on revenue of $1.80 billion for its fourth quarter excluding one-time items.
That beat the 68 cents per share figure analysts were expecting according to Thomson Reuters. A year ago Darden earned 88 cents per share on revenue of $1.81 billion.
Darden’s chairman and chief executive Clarence Otis said the company was pleased with its sales and earnings performance for the quarter given the considerable macroeconomic weakness and consumer uncertainty. He said it was more important than ever that Darden has strong brands as consumers responded to the economic climate by reducing dining frequency.
Mr. Otis said the company’s competitively superior same-restaurant sales were the clearest indication that Darden has proven brands with broad appeal and strong guest loyalty.
According to the Knapp-Track casual dining benchmark, combined restaurant sales for Olive Garden, Red Lobster and LongHorn Steakhouse were only down 3.2 percent for the quarter compared to an estimated 6.5 percent decline (excluding Darden) for the index.
Not surprisingly same-restaurant sales at the company’s high-end Capital Grille were hardest hit, posting a 19 percent decline. Darden’s two biggest chains, Red Lobster and Olive Garden, benefited from ramped up value offerings and marketing spending and posted same-restaurant declines of just 4.6 percent and 1.4 percent, respectively. The company also said severe winter weather and an earlier than usual Thanksgiving also cut into sales.
Analysts were impressed with the results as well. One, from Morgan Keegan said his company believes Darden appears best positioned among its peers to weather the current environment given its stronger-than-peers operating margins, marketing muscle, operating economies of scale and well-controlled commodity costs.
He also said that restaurant chains in general appear to be holding up better than other businesses dependant on discretionary spending, such as clothing retailers or auto manufacturers.
Darden plans to open 35 to 40 net new Olive Garden restaurants, 10 net new Red Lobster restaurants and 15 to 17 net new LongHorn Steakhouses this year.
It expects earnings excluding special items to be flat to down 3 percent for the year, implying a profit of $2.66 to $2.74 per share. Previously the company said it expected earnings to fall 5 percent to 10 percent for the year. Analysts had pegged earnings of $2.52 per share for the year.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
