Friday witnessed Stifel adjusting its outlook on Darden Restaurants (NYSE:DRI) shares, as the firm reduced the price target to $180 from the previous $190 while sustaining a Buy rating on the stock.
This decision follows Darden's announcement of fourth-quarter earnings that surpassed expectations, with a reported $2.65 per share against the anticipated $2.62 by Stifel and $2.61 consensus estimate. The company managed to exceed earnings predictions primarily due to lower food and labor costs.
Despite outperforming on earnings, Darden's revenue did not meet analyst estimates for the third consecutive quarter. Olive Garden, a key brand in the Darden portfolio, experienced a slide in same-restaurant sales (SRS) of 1.5%, which was more significant than both Stifel's and the Street's projections of -1.0% and -0.2%, respectively.
The restaurant chain has been successful in maintaining its profitability and earnings per share outlook, even with softer SRS and menu pricing that has not kept pace with inflation. This has been attributed to effective cost management and enhanced labor productivity.
Darden's SRS and customer traffic have been performing better than the broader industry, yet there is a cautionary note from Stifel regarding the potential end to Olive Garden's traffic outperformance in the first quarter of fiscal year 2025. This projection is based on an analysis of mobile location data.
While the Buy rating is retained, the firm signals that it could adopt a more guarded stance if there are indications that Olive Garden's value proposition is weakening when compared to its competitors. Such a scenario might necessitate a reassessment of the restaurant's average check and profitability metrics.
Stifel's commentary underscores the company's adept handling of costs and productivity as key factors in maintaining earnings strength despite less robust sales. The firm's watchful eye on Olive Garden's competitive positioning indicates a strategic focus on consumer perception and market dynamics.
In other recent news, Darden Restaurants reported a 6.8% increase in total sales to $3 billion and steady earnings per share at $2.62. The company's recent financial results have led to a flurry of analyst activity.
Citi raised its price target for Darden shares, maintaining a Buy rating, while UBS reaffirmed its Buy rating, citing the company's strong market share strategy. On the other hand, Deutsche Bank (ETR:DBKGn) reduced its price target from $183 to $180 due to industry challenges and potential increased marketing expenses.
These adjustments in analyst ratings follow Darden's announcement of its fiscal year 2025 guidance, which includes a blended same-store sales growth of 1.0-2.0% and an adjusted earnings per share of $9.40-9.60. Analysts from firms such as BTIG and Truist Securities have expressed confidence in Darden's ability to meet these financial goals amidst industry challenges.
Darden's focus on strengthening Olive Garden's sales trajectory and achieving the FY25 guidance has been highlighted. Despite a 3.3% traffic decline at Olive Garden, the company managed to achieve profitable sales growth.
In addition, the company plans to open 45 to 50 new restaurants in fiscal 2025, with capital expenditures estimated between $250 million and $300 million. These are recent developments following Darden's earnings report.
InvestingPro Insights
Recent data from InvestingPro highlights Darden Restaurants' (NYSE:DRI) financial standing and market performance. With a solid Market Cap of $18.42B and a P/E Ratio of 17.81, Darden shows a stable investment profile. The company's commitment to shareholders is evident through its consistent dividend payments, now maintained for 30 consecutive years, and a dividend yield of 3.4% as of the latest data. Additionally, Darden has managed to raise its dividend for 3 consecutive years, signaling financial health and a positive outlook for income-focused investors.
InvestingPro Tips suggest that while Darden is trading at a high Price / Book multiple of 8.44, indicating a premium valuation, analysts predict the company will be profitable this year, which is supported by a robust revenue growth of 8.53% over the last twelve months. However, investors should note that 10 analysts have revised their earnings downwards for the upcoming period, which may warrant closer scrutiny. For those looking to delve deeper into Darden's financials and market performance, InvestingPro offers a wealth of additional tips. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription and gain access to the full suite of insights.
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