On Friday, Jefferies maintained an Underperform rating on Darden Restaurants (NYSE:DRI) but increased the price target to $136 from $124. The adjustment follows Darden's first-quarter earnings per share (EPS) which fell short of expectations, with same-store sales (SSS) for Olive Garden down 2.9%, compared to the -1.7% consensus.
This decline included a mid-single-digit percentage decrease in customer traffic. However, the lower general and administrative expenses (G&A) helped to partially offset a miss in restaurant-level margin (RLM).
Despite the underwhelming first-quarter results, Darden Restaurants reiterated its full-year guidance. Commentary for September indicated a better-than-anticipated performance, although concerns remain about its sustainability. Jefferies pointed out that while the market's immediate worries were somewhat alleviated by the announcement of a pilot delivery program, there's skepticism regarding the effectiveness of this initiative and the expected second-half same-store sales increase, especially considering the growing promotional activity within the restaurant industry.
The firm highlighted that while the September results were encouraging, the positive sentiment might be temporary due to underlying challenges. The analyst expressed doubt about the potential success of the new delivery pilot and its impact on Darden's performance in the latter half of the fiscal year in the face of increased competition and promotional efforts across the restaurant sector.
Darden Restaurants' strategy to pilot a delivery service is an attempt to innovate and adapt to changing market demands. The company's commitment to maintaining its full-year outlook suggests confidence in its business strategy, despite recent setbacks in performance and the analyst's cautious stance on the stock's prospects.
In other recent news, Darden Restaurants has reported significant developments. The company's recent earnings call indicated a modest 1% increase in sales, reaching $2.8 billion, despite weaker-than-expected earnings. Darden also announced a future acquisition of Chuy's, which is expected to have a neutral impact on earnings per share.
Analysts from various firms have responded to these developments. Piper Sandler maintained a neutral stance on Darden with a $177 price target, Baird and Stephens raised their targets to $172 and $164 respectively, and Evercore ISI upgraded Darden's stock to "Outperform," increasing the price target to $205. BTIG also maintained a "Buy" rating and raised the price target for Darden.
Furthermore, Darden announced a new partnership with UBER for white label delivery, set to commence later this year with Olive Garden, Darden's largest brand by revenue and segment profit. This partnership could potentially boost the company's adjusted earnings per share in future financial periods.
InvestingPro Insights
As Darden Restaurants (NYSE:DRI) continues to navigate through market challenges and strategize with new initiatives like the delivery service pilot, it's important for investors to consider key financial metrics and analyst insights. According to real-time data from InvestingPro, Darden Restaurants has a market capitalization of $20.48 billion and is trading at a P/E ratio of 18.33, which reflects a premium relative to near-term earnings growth. This aligns with one of the InvestingPro Tips, which notes that Darden is trading at a high P/E ratio given its earnings outlook.
The company has also demonstrated a commitment to shareholders through consistent dividend payments, having maintained them for 30 consecutive years and raising them for the last three years. Furthermore, Darden's revenue growth over the last twelve months was 8.6%, indicating a solid financial performance despite recent operational challenges. Investors should note that while the stock is trading near its 52-week high, with a price percentage of 97.42% of that peak, analysts have revised their earnings expectations downwards for the upcoming period.
These insights, including additional InvestingPro Tips available at https://www.investing.com/pro/DRI, can provide a deeper understanding of the company's financial health and market position as it works to implement new strategies and improve same-store sales. With 9 additional InvestingPro Tips listed, investors have access to a comprehensive analysis that could inform their investment decisions in the context of Darden Restaurants' current market performance and future prospects.
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