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Darden Restaurants Inc - Stock Quote DRI

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Morningstar's Darden Restaurants Inc Stock Analysis

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Despite Impressive Quarter, Darden's Guidance Looks Overly Optimistic as Consumer Sentiment Wanes

Sean Dunlop Equity Analyst

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.

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Darden Restaurants Inc's Company Profile

Business Description

Darden Restaurants is the largest restaurant operator in the U.S. casual and fine dining markets, with consolidated revenue of $7.2 billion in fiscal 2021 resulting in 3.8% market share (per Euromonitor data and our calculations). The company maintains a portfolio of eight restaurant chains: Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Eddie V’s, and Bahama Breeze. Darden generates revenue almost exclusively from company-owned restaurants, though a network of 64 franchised restaurants and consumer-packaged goods sales through the traditional grocery channel contribute modestly. As of the end of Darden's fiscal 2022 third quarter, the company owned 1,855 restaurants in the U.S.

1000 Darden Center Drive
Orlando, FL, 32837
T +1 407 245-4000
Sector Consumer Cyclical
Industry Restaurants
Most Recent Earnings Feb 28, 2022
Fiscal Year End May 31, 2021
Stock Type Cyclical
Employees 156,883

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