Darden Earnings: Traffic Gains and Margin Improvement Validate Management Strategy; Raising Our FVE

After narrow-moat Darden outperformed industrywide traffic by 700 basis points during fiscal third-quarter 2023 (Black Box Intelligence), we're finally giving the firm credit where it's due. Darden learned its lesson after raising prices too aggressively amid the global financial crisis, and its commitment to structurally lower marketing expenses in lieu of using discounting to buy traffic is a meaningful step forward. After digesting wide industry outperformance, management suggesting long-term margin expansion, and a massive (340-basis-point) sequential improvement in its restaurant EBITDA margin to 20%, we expect to raise our $123 fair value estimate by more than 15%, leaving shares fairly valued.