Factors Setting the Tone for Darden's (DRI) Q2 Earnings

Darden Restaurants, Inc. DRI is scheduled to report second-quarter fiscal 2020 results on Dec 19. In the last reported quarter, the company delivered a positive earnings surprise of 1.5%. Notably, Darden’s bottom line surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with the average positive surprise being 1.5%.

Trend in Estimate Revision

The Zacks Consensus Estimate for fiscal second-quarter earnings has been unchanged at $1.07 over the past 30 days. This indicates a 16.3% gain from 92 cents per share registered in the year-ago quarter. The consensus mark for revenues is pegged at $2,058 million, suggesting a 4.3% year-over-year improvement.

Factors to Note

Robust performance of Darden’s Olive Garden, Fine Dining, LongHorn Steakhouse and Other business is likely to reflect on second-quarter fiscal 2019 results. The Zacks Consensus Estimate for sales at Olive Garden, Fine Dining and LongHorn Steakhouse is pegged at $1,039 million, $159 million and $429 million, indicating growth of 4.1%, 8.4% and 4% year over year, respectively.

Olive Garden, which posted the 20th consecutive quarter of positive comps in first-quarter fiscal 2020, is likely to continue the trend in the soon-to-be-reported quarter. The Brand Renaissance plan and To Go business, which offer online ordering at select locations, are expected to reflect on the segment’s results in second-quarter fiscal 2020. Notably, the brand has been focusing on remodeling and bar refreshes.

Moreover, the company’s focus on strengthening its in-restaurant execution through investments in quality and simplification of operations bodes well.
    
However, the company’s margin in the quarter is likely to have been affected by high labor costs. Further, the non-franchised model makes it susceptible to increased expenses. Since all the restaurants are owned and operated by Darden, instead of signing franchise agreements and putting the burden of costs into the franchisee, the company is solely responsible for the expenses of operating the business.

Darden Restaurants, Inc. Price and EPS Surprise

Darden Restaurants, Inc. Price and EPS Surprise

Darden Restaurants, Inc. price-eps-surprise | Darden Restaurants, Inc. Quote

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Darden Restaurants this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

The company has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Peer Releases

Dunkin' Brands Group, Inc. DNKN reported mixed results in third-quarter 2019, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Its adjusted earnings of 90 cents per share outpaced the consensus estimate of 81 cents by 11.1%. Although revenues were up 1.7% year over year to $355.9 million, the same missed the consensus mark of $359 million.

Brinker International, Inc. EAT reported mixed first-quarter fiscal 2020 results, wherein earnings were in line with the Zacks Consensus Estimate but revenues fell shy of the same. Moreover, adjusted earnings of $41 cents per share declined 12.8% from the year-ago quarter, mainly due to increase in stock-based compensation expenses for newly-retired executives. Quarterly revenues of $786 million lagged the consensus mark of $788 million but increased 4.3% on a year-over-year basis.

Chipotle Mexican Grill, Inc. CMG reported third-quarter 2019 results, wherein both earnings and revenues surpassed the respective Zacks Consensus Estimate. The company’s adjusted earnings of $3.82 per share topped the Zacks Consensus Estimate of $3.20. The bottom line also improved 76.9% from the year-ago quarter, driven by higher revenues and strong operating margins. Quarterly revenues of $1.4 billion surpassed the consensus estimate by 1.8% and rose 14.6% year over year.

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