DARDEN EARNINGS on 6/23
DRI annual guidance will offer the first look into current casual dining sales trends
Before the market opens on Thursday, DRI will provide its fiscal fourth-quarter earnings and guidance for FY023. The company provided a 4Q22 outlook of sales between $2.52B and $2.59B and EPS between $2.13 and $2.28, which was higher than what was contemplated last December. The only commentary around FY2023 was:
- We expect to open approximately 60 new units in FY2023
- We project total capital spending between $500mm and $550mm
- We anticipate an effective tax rate of approximately 14% for FY2023
The street estimates for FY2023:
- Same-Store sales of +4.4%
- Revenues growth of +6.9%
- Restaurant margin of 21%, up 30bps YoY
- Operating Margin 12.2% (flat YoY) and 220 bps above the prior peak of 10% in FY2019
- EPS of $8.11 up 9.9% YoY
The street estimates are for restaurant-level margins to decline by 90bps in FY1Q23, flat in 2Q32, and then up by 130bps in 3Q23, which seems nearly impossible. This begs the question, can DRI grow EPS at nearly 10% when heading into a likely recession in 2023?
As you can see in the slide below, The Olive Garden (47% of the stores) and Long Horn (29% of the stores) traffic trends have been slowing since mid-April, and the decline has accelerated since the end of the quarter. In 4Q22, the average traffic gain for Long Horn was 0.83%, and Olive Garden was 3.29%. DRI has beat EPS estimates for 7 of the last eight quarters while missing revenue consensus in 50% of those reports. The company is running a 6% price, so the 9.2% SSS estimate for the quarter will depend on how the small brands perform.
How DRI guides for FY23 will have an impact on other casual dining companies, which is not reflecting slower sales trends in May and June.
SBUX overhaul is just starting.
The changes come as a growing number of the chain's restaurants have voted to join a union—currently numbering more than 150 locations, according to Starbucks Workers United. She had become a visible presence in the company's anti-union campaign.
Rossann Williams, who, as head of Starbucks' North America market, is the most visible executive, to leave the company at the end of the month, Starbucks said on Friday. Sara Trilling, a 20-year company veteran who heads the Asia Pacific market out of Hong Kong, will step into the role, according to a letter to employees from Starbucks Chief Operating Officer John Culver. In his letter, Culver said that the company "made a difficult, but necessary change to our North America business" that "creates new leadership for a new era at Starbucks." Ms. Williams oversaw Starbucks' most prominent market, with 18,000 stores across North America. As the SBUX CEO indicated last month, the other issue was that Starbucks' primary problem was its inability to fully satisfy the growing demand for customized drinks ordered through multiple channels. Schultz also suggested that an outsider was needed to be the next CEO, suggesting a broad overhaul was likely and will be the focus of the upcoming analyst meeting.
STZ Call
STZ is a LONG
Daniel Biolsi is presenting his updated thoughts in a black book on Best Idea Long Constellation Brands (STZ) Thursday, June 23rd @ 12:30 pm EST, ahead of the company's FQ1 earnings release. Constellation Brands historically has outperformed the S&P 500 in Quad4. On an absolute basis, Quad4 is the second-best quad for Constellation Brands' share price performance. Our team's black book will cover rumors of a tie-up with Monster Energy (MNST), recent off-premise and on-premise trends, updates on the wine and spirits sectors, and what hard seltzer 2.0 looks like for Constellation Brands. Daniel will also discuss what to expect from the Sand's offer for their voting rights, a review of recent off-premise and on-premise trends, an update on wine and spirit sectors, what hard seltzer 2.0 looks like, a Canadian cannabis market update for Canopy Growth, and where we see the upside and downside in the financial model.
Consumer Staples Subscribers CLICK HERE for event details (includes video and materials link)
