Maximizing Efficiency: Darden Restaurants' Update Strategic Financial Outlook for 2024
DRI is a LONG BIAS - Raises EPS on the earnings beat, but the top line is a little soft
Darden Restaurants (DRI) reported a 9.7% increase in total sales to 2.7 billion for the second quarter ending November 26, 2023. This growth was primarily due to a 2.8% (beat by 10bps) rise in same-restaurant sales and the addition of 78 Ruth's Chris Steak House locations and 45 other new restaurants. The company saw varied performance across its brands. Olive Garden (Big beat in SSS) and LongHorn Steakhouse (slight miss) showed growth, while the Fine Dining and Other Business segments experienced unsurprising declines. Darden's diluted net earnings per share were 1.76, but adjusted for RUTH (0.08), earnings were 1.84 per share, a 21.1% increase. Additionally, the company repurchased 181 million of its stock. CEO Rick Cardenas emphasized Darden's market share growth and focus on long-term business management.
Update financial guidance:
Darden has updated its financial guidance for May 2024. The company now expects EPS to be between 8.75 and 9.00, excluding certain items, an increase from the previous forecast of 8.55 to 8.85. This projection surpasses the FactSet consensus estimate of 8.82. Revenue expectations are approximately 11.5 billion, consistent with prior guidance but slightly below the FactSet estimate of 11.58 billion. Same-restaurant sales growth is anticipated to be between 2.5% and 3.0%, slightly lower than the previous maximum estimate of 3.5% and the FactSet forecast of 3.1%. The company plans to open 50 to 55 new restaurants, a slight increase from the initial estimate of around 50. Total capital spending is projected to be around 600 million, at the upper end of the previous range of 550 to 600 million. Total inflation is expected to be between 3.0% and 3.5%, slightly lower than the prior estimate of 3% to 4%. The effective tax rate is reaffirmed at approximately 12% to 12.5%.
Key Highlights:
- Total Sales Growth: Increased by 9.7% to 2.7 billion.
- Same-Restaurant Sales Increase: Overall growth of 2.8%.
- Brand Performance:
- Olive Garden: +4.1% (FS 2.7%)
- LongHorn Steakhouse: +4.9% increase (FS 5.0%)
- Fine Dining: -1.7% (FS -0.6%).
- Other Business: -1.1% (FS +1.4%)
- Earnings Per Share: Reported at 1.76, adjusted to 1.84 after excluding certain costs up 21%.
- Stock Repurchase: 181 million of common stock repurchased.
Rising Trends in Restaurant Sales: How Local Economic Optimism Fuels Consumer Spending
Restaurant sales in the U.S. have shown a consistent rise, with November witnessing a 1.6% increase MoM to 94.7 billion, marking the ninth consecutive month of growth. This trend reflects a robust 8.5% growth over the past nine months, significantly outpacing the 1.7% gain in non-restaurant retail sectors. Adjusted for inflation, restaurant sales still increased by 4.7%. Despite mixed feelings about the national economy, local economic sentiment is more optimistic, influencing consumer spending behavior. While only 20% of adults feel confident in their finances and are not restricting spending, most adopt a cautious approach.
Key Highlights:
- Restaurant Sales Growth: Sales rose to 94.7 billion in November, a 1.6% increase from October, with a 9-month growth of 8.5%.
- Inflation-Adjusted Sales Increase: Even after adjusting for menu price inflation, sales increased by 4.7% over the last nine months.
- Local vs. National Economic Sentiment: Consumers are more optimistic about their local economies than the national economy, influencing spending habits.
- Consumer Spending Behavior: According to the NRA, 20% of adults are confident in their finances and spend freely, while most are cautious.
- Labor Market Influence: A strong labor market is crucial to consumer spending, with positive job prospects supporting restaurant sales.
Steaming Ahead: How Starbucks is Transforming Labor Relations and Brewing a Better Future
Starbucks, steadfast in its dedication to core principles like human rights and maximizing shareholder value, recently evaluated its labor practices comprehensively. This initiative, sparked by shareholder demands in March 2023, led to enlisting labor relations and human rights specialist Thomas M. Mackall for an in-depth probe. Overseen by the company's Board and various committees, the investigation revealed notable advancements in governance and labor relations at Starbucks. It highlighted the company's respect for its partners' unionization rights and an uptick in union election participation. Although no evidence of an "anti-union playbook" emerged, the review pinpointed improvement areas. These include refining the Global Human Rights Statement, enhancing management training, and revising disciplinary protocols. In response, CEO Laxman Narasimhan and the Board have pledged to tackle these issues head-on. A newly established Environmental, Partner, and Community Impact Committee is set to spearhead these initiatives, underscoring Starbucks' commitment to its foundational values.
