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Olive Garden & LongHorn to Drive Darden's (DRI) Q1 Earnings

Zacks Equity Research

Darden Restaurants, Inc. DRI is scheduled to report first-quarter fiscal 2020 results on Sep 19. In the last reported quarter, the company reported an earnings beat of 1.7%. Notably, Darden’s bottom line has surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 3.4%.

How are Estimates Faring?

The Zacks Consensus Estimate for first-quarter earnings is pegged at $1.36, which moved up by a cent over the past 60 days. This indicates a 1.5% gain from $1.34 registered in the year-ago quarter. For quarterly revenues, the same stands at $2,137 million, suggesting a 3.7% improvement year over year.

Let’s delve deep to unearth the factors that are likely to impact Darden’s first-quarter fiscal 2020 results.

Factors at Play

Darden Restaurants’ results in first-quarter fiscal 2020 are likely to be driven by robust performance of Olive Garden, Fine Dining and LongHorn Steakhouse. The Zacks Consensus Estimate for comps at Olive Garden, The Capital Grille and LongHorn Steakhouse are likely to increase 1.4%, 1.8% and 2.5%, respectively, year over year.

Olive Garden, which posted the 19th consecutive quarter of positive comps in the fourth-quarter fiscal 2019, is likely to continue with the trend in the soon-to-be reported quarter. This segment has been benefiting from Brand Renaissance plan and the To Go business, which offers online ordering at selected locations. Also, the brand is focusing on remodeling and bar refreshes.

Meanwhile, the LongHorn segment is likely to gain from the core menu and culinary innovation. The company’s focus on strengthening its in-restaurant execution through investments in quality and simplification of operations in order to augment the guest experience too bode well.  Owing to these efforts, segmental comps registered growth for 25 consecutive quarters.

However, the company’s margin in the quarter is likely to be impacted by higher labor costs due to increased wages. Further, the non-franchised model makes the company 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, Consensus and EPS Surprise

Darden Restaurants, Inc. Price, Consensus and EPS Surprise

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

What Does the Zacks Model Unveil?

Our proven model does not show that Darden Restaurants is likely to beat on earnings in first-quarter fiscal 2020. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP.

Darden Restaurants 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

BJ’s Restaurants, Inc. BJRI reported mixed second-quarter 2019 results, wherein earnings missed the Zacks Consensus Estimate while revenues surpassed the same. Adjusted earnings of 68 cents missed the Zacks Consensus Estimate of 74 cents by 8.1%. The bottom line also decreased 13.9% year over year.

Domino’s DPZ reported mixed second-quarter 2019 financial numbers, wherein earnings exceeded the Zacks Consensus Estimate but revenues missed the same. Adjusted earnings of $2.19 per share outpaced the Zacks Consensus Estimate of $2.00. The metric also increased 19% on a year-over-year basis. The bottom-line improvement was driven by higher net income and lower diluted share count as a result of share repurchases.

Chipotle CMG reported better-than-expected results in the second quarter of 2019. Its adjusted earnings of $3.99 per share surpassed the Zacks Consensus Estimate of $3.69 by 8.1%. The bottom line also grew 39% from the year-ago quarter number backed by solid revenues and strong operating margins.

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