Analyst Note
| Sean Dunlop |Narrow-moat Darden Restaurants posted impressive fiscal 2022 fourth-quarter results, with $2.6 billion in sales and $2.24 in diluted earnings per share edging out our $2.55 billion and $2.18 forecasts. Strength was broad-based, with same-store sales growth accelerating sequentially in all segments relative to pre-COVID-19 levels, though management commentary suggested modest evidence of check management among lower-income consumers, particularly at the Cheddar's brand. Despite the strong quarter, management's fiscal 2023 guidance struck us as aggressive, with sales and EPS growth of nearly 7% and 4% at the midpoints layering in 4%-6% same-store sales growth and nearly 3% unit growth; this contrasts sharply with an industrywide slowdown in traffic during May and early June. While we remain optimistic about Darden's positioning even against a backdrop of softer consumer sentiment, given better diversified brands, a more affluent average consumer, and a better value proposition than in 2007-09, we remain a bit more cautious than management with respect to consumer health. We now forecast just 5% sales growth and 1% earnings growth for fiscal 2023, with pressure in both the fine dining and relatively value-driven "other restaurants" segments. Those changes are effectively offset by strong quarterly results and time value, resulting in little expected change to our $134 fair value estimate. The shares continue to look cheap, trading around 15% below our intrinsic valuation.