Darden Restaurants Earnings: Olive Garden and Red Lobster Drag Revenues Below Estimates

S&P 500 (NYSE:SPY) component Darden Restaurants Inc. (NYSE:DRI) reported its results for the fourth quarter. Darden Restaurants operates a full-service dining restaurant industry in the United States.

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Darden Restaurants Inc. Earnings Cheat Sheet

Results: Net income for Darden Restaurants Inc. rose to $151.2 million ($1.15 per share) vs. $137.5 million (99 cents per share) in the same quarter a year earlier. This marks a rise of 10% from the year-earlier quarter.

Revenue: Rose 3.8% to $2.07 billion from the year-earlier quarter.

Actual vs. Wall St. Expectations: Darden Restaurants Inc. fell in line with the mean analyst estimate of $1.15 per share. It fell short of the average revenue estimate of $2.11 billion.

Quoting Management: “Earnings growth for the fourth quarter represents a solid finish to a challenging fiscal year,” said Clarence Otis, Chairman and Chief Executive Officer of Darden. “The double-digit percentage growth in diluted net earnings per share we achieved for the quarter and for the second half of the fiscal year are testaments to the strength of our business model. It’s also important to note that, except for unusually high seafood cost inflation in the first half, earnings growth for the full fiscal year would have been meaningfully stronger. From a sales perspective, growth in the fourth quarter was below expectations, due largely to same-restaurant sales declines at both Olive Garden and Red Lobster that reflected less effective than anticipated nationally advertised promotions. Still, we’re making progress on our efforts to elevate the guest experience at Olive Garden, and over the next 12 months guests will see more and more of the improved food, service, value and advertising we’ve been developing. Despite its fourth quarter sales softness, Red Lobster, like LongHorn Steakhouse and our Specialty Restaurant Group brands, had very strong same-restaurant sales growth for the full fiscal year. And, with the work we’ve been doing to strengthen the brand, we expect Red Lobster to continue to achieve competitively strong same-restaurant sales growth in fiscal 2013.”

Key Stats:

Revenue has risen for the last four quarters. Revenue increased 9.3% to $2.16 billion in the third quarter. The figure rose 6.1% in the second quarter from the year earlier and climbed 7.5% in the first quarter from the year-ago quarter.

The company fell in line with estimates last quarter after beating forecasts in the previous quarter with net income of $1.25 versus a mean estimate of net income of $1.24 per share.

Margins increased in the third quarter after dropping the quarter before. Gross margins grew to 24.1%, up 0.1 percentage point from the year-earlier quarter. In the second quarter, the figure rose 0.6 percentage point to 24.7% from the year earlier quarter.

The company has now seen net income increase for two quarters in a row. In the third quarter, net income rose 8.5% from the year earlier.

Looking Forward: Analysts appear increasingly negative about the company’s results for the next quarter. The average estimate for the first quarter of the next fiscal year has moved down from 91 cents a share to 88 cents over the last ninety days. Over the past sixty days, the average estimate for the fiscal year has reached $3.58 abs per share, a decline from $3.60.

(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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