Darden Restaurants Inc. Earnings Cheat Sheet: Higher Expenses Shrinks Margins, Profit Declines

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

Investing Insights: Here’s Why Chipotle’s Stock Keeps Winning.

Darden Restaurants Earnings Cheat Sheet for the Second Quarter

Results: Net income for the restaurant fell to $53.7 million (40 cents per share) vs. $74.5 million (53 cents per share) a year earlier. This is a decline of 27.9% from the year earlier quarter.

Revenue: Rose 6% to $1.83 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: DRI fell short of the mean analyst estimate of 43 cents per share. It fell exactly in line with the average revenue estimate of $1.83 billion.

Quoting Management: “As we previously announced, strong sales growth this quarter at Red Lobster, LongHorn Steakhouse and our Specialty Restaurant Group was offset by below expectation sales results at Olive Garden, pressure on check averages as guests continue to be cautious about spending and unfavorable year-over-year food costs,” said Clarence Otis, Chairman and Chief Executive Officer of Darden. “To rebuild its value leadership position in the industry, Olive Garden is developing new promotional and core menu offerings and new advertising and is focused on remodeling its older restaurants. While guests will experience some of the changes relatively soon, others will take time to develop and implement. Fortunately, with reduced cost inflation in the second half of this fiscal year, the strong momentum at our other brands enables us to anticipate solid earnings growth for the remainder of the fiscal year even as Olive Garden makes the changes needed to get back on track.”

Key Stats:

Gross margin shrank 2.1 percentage points to 20.2%. The contraction appeared to be driven by increased costs, which rose 8.9% from the year earlier quarter while revenue rose 6%.

Revenue has risen the past four quarters. Revenue increased 7.5% to $1.94 billion in the first quarter. The figure rose 6.8% in the fourth quarter of the last fiscal year from the year earlier and climbed 5.5% in the third quarter of the last fiscal year from the year-ago quarter.

The company has now seen net income fall in each of the last two quarters. In the first quarter, net income fell 5.7% from the year earlier quarter.

The company fell short of estimates last quarter after being in line with expecations the quarter before with net income of 78 cents.

Looking Forward: Analysts appear increasingly negative about the company’s results for the next quarter. The average estimate for the third quarter has moved down from $1.26 a share to $1.19 over the last ninety days. The average estimate for the fiscal year is $3.59 per share, down from $3.81 ninety days ago.

Competitors to Watch: Landry’s Restaurants, Inc (LNY), Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH), Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG), Granite City Food & Brewery Ltd. (NASDAQ:GCFB), O’Charley’s Inc. (NASDAQ:CHUX), Ark Restaurants Corp. (NASDAQ:ARKR), Morton’s Restaurant Group, Inc. (NYSE:MRT), Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB), and McCormick & Schmick’s Seafood Restaurant (NASDAQ:MSSR).

Investing Insights: Here’s Why Chipotle’s Stock Keeps Winning.

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