Darden Restaurants (NYSE: DRI) reported weaker-than-expected fiscal Q3 results, falling short of both earnings and revenue estimates.
The Omicron variant negatively impacted overall demand, restaurant staffing, and expenses in January. On top of that, the company reduced its full-year guidance falling short of analysts’ expectations.
Despite the quarterly miss and lowered fiscal FY2022 outlook, shares of the American multi-brand restaurant operator remained resilient, perhaps due to a rebound in sales trends in February and March. Shares closed 1% higher at $132.40 on March 24.
Q3 Miss
Adjusted earnings of $1.93 per share almost doubled year-over-year but fell short of analysts’ expectations of $2.13 per share. The company reported earnings of $0.98 per share for the prior-year period.
Moreover, total sales jumped 41.3% year-over-year to $2.45 billion, but lagged consensus estimates of $2.54 billion.
The increase in revenues reflected a surge in same-restaurant sales, which increased 38.1%, coupled with the addition of 33 net new restaurants.
Muted FY2022 Outlook
Based on fiscal Q3 results and expected business performance, assuming no significant business interruptions related to COVID-19, management lowered financial guidance for FY2022.
For FY2022, the company now forecasts adjusted earnings in the range of $7.30 to $7.45 per share, lower than the consensus estimate that is pegged at $7.50 per share. Previously, the company expected adjusted earnings in the range of $7.35 to $7.60.
Further, total sales are forecast to be in the range of $9.55 billion to $9.62 billion, lower than the prior guided range of $9.55 billion to $9.7 billion, and the consensus estimate of $9.61 billion.
CEO Comment
Looking ahead, Darden Restaurants CEO, Gene Lee, stated, “Darden is well positioned to compete effectively….We have a strong balance sheet and the right strategy in place, driven by our four competitive advantages of significant scale, extensive data and insights, rigorous strategic planning and our results-oriented culture.”
Wall Street’s Take
Following the Q3 miss, Stifel Nicolaus analyst Chris O’Cull decreased the price target on Darden Restaurants to $160 (20.85% upside potential) from $165 and reiterated a Buy rating.
The analyst believes that the Q3 miss and the consequential reduction in the full-year outlook were anticipated by the street due to the impact of Omicron.
Positively, Cull is impressed by the steadfast resurge in comp sales trends in February, with “March AWS (3 weeks) running slightly ahead of February levels.”
Based on the company’s sales levers and scale advantages, the analyst reaffirms that Darden remains well-positioned to outperform despite current challenges.
Turning to Wall Street, the analyst consensus is optimistic about Darden Restaurants, with a Strong Buy rating based on eight Buys and two Holds. The average Darden stock forecast of $160 indicates an upside potential of 20.85%.
TipRanks’ Smart Score
DRI scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
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