Darden's (NYSE:DRI) Posts Q2 Sales In Line With Estimates

Radek Strnad /
2023/12/15 7:08 am EST

Restaurant company Darden (NYSE:DRI) reported results in line with analysts' expectations in Q2 FY2024, with revenue up 9.7% year on year to $2.73 billion. On the other hand, the company's full-year revenue guidance of $11.5 billion at the midpoint came in slightly below analysts' estimates. It made a GAAP profit of $1.76 per share, improving from its profit of $1.52 per share in the same quarter last year.

Key Takeaways from Darden's Q2 Results

Same store sales grew 2.8% year on year and was in line with expectations, but revenue missed. EPS beat, which was a major positive. With regards to guidance, it was mixed just like the quarter's performance. Fiscal 2024 revenue guidance was slightly below while EPS was slightly ahead. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $163.02 per share.

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Darden (DRI) Q2 FY2024 Highlights:

  • Market Capitalization: $19.62 billion
  • Revenue: $2.73 billion vs analyst estimates of $2.74 billion (small miss)
  • EPS: $1.76 vs analyst estimates of $1.72 (2.1% beat)
  • Fiscal 2024 revenue guidance of $11.50 billion at the midpoint, slightly below expectations of $11.57 billion; EPS midpoint of $8.83, slight ahead of expectations of $8.81
  • Free Cash Flow of $179.3 million, up 51.7% from the previous quarter
  • Gross Margin (GAAP): 20.2%, up from 17.8% in the same quarter last year
  • Same-Store Sales were up 2.8% year on year (in line with expectations)
  • Store Locations: 2,010 at quarter end, increasing by 123 over the last 12 months

"We continued to profitably grow market share again this quarter as we outperformed industry same-restaurant sales and traffic," said Darden President & CEO Rick Cardenas.

Started in 1968 as the famous seafood joint, Red Lobster, Darden (NYSE:DRI) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.

Sit-Down Dining

Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.

Sales Growth

Darden is one of the most widely recognized restaurant chains in the world and benefits from brand equity, giving it customer loyalty and more influence over purchasing decisions.

As you can see below, the company's annualized revenue growth rate of 6.2% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre , but to its credit, it opened new restaurants and grew sales at existing, established dining locations.

Darden Total Revenue

This quarter, Darden's revenue grew 9.7% year on year to $2.73 billion, missing Wall Street's expectations. Looking ahead, Wall Street expects sales to grow 7.7% over the next 12 months, a deceleration from this quarter.

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Number of Stores

A restaurant chain's total number of dining locations often determines how much revenue it can generate.

When a chain like Darden is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. Since last year, Darden's restaurant count increased by 123, or 6.5%, to 2,010 locations in the most recently reported quarter.

Darden Operating Retail Locations

Taking a step back, Darden has opened new restaurants over the last eight quarters, averaging 3.1% annual increases in new locations. This growth outpaces the broader restaurant sector, but comparisons should be taken lightly as the industry is quite mature. Analyzing a restaurant's location growth is important because expansion means Darden has more opportunities to feed customers and generate sales.

Same-Store Sales

A company's same-store sales growth shows the year-on-year change in sales for its restaurants that have been open for at least a year, give or take. This is a key performance indicator because it measures organic growth and demand.

Darden's demand has outpaced the broader restaurant sector over the last eight quarters. On average, the company has grown its same-store sales by a robust 10.6% year on year. This performance suggests its steady rollout of new restaurants could be beneficial for shareholders. When a company has strong demand, more locations should help it reach more customers seeking its meals.

Darden Year On Year Same Store Sales Growth

In the latest quarter, Darden's same-store sales rose 2.8% year on year. By the company's standards, this growth was a meaningful deceleration from the 7.3% year-on-year increase it posted 12 months ago. We'll be watching Darden closely to see if it can reaccelerate growth.

So should you invest in Darden right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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