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What to Expect from Darden’s Fiscal 1Q18 Earnings

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Part 2
What to Expect from Darden’s Fiscal 1Q18 Earnings PART 2 OF 6

Analysts Expect Darden’s Revenue to Rise in Fiscal 1Q18

Revenue sources

The sales from all eight brands form Darden Restaurants’ (DRI) revenue. In fiscal 4Q17, Olive Garden generated 53.1% of the company’s revenue, while LongHorn Steakhouse and other brands contributed 22.6% and 24.3%, respectively.

Analysts Expect Darden&#8217;s Revenue to Rise in Fiscal 1Q18

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Fiscal 1Q18 revenue estimate

Analysts expect Darden to post revenues of $1.93 billion in fiscal 1Q18, which represents 12.7% growth from $1.71 billion in 1Q17. The revenue growth is expected to be driven by the acquisition of Cheddar’s Scratch Kitchen, positive SSSG (same-store sales growth), and unit growth.

In April 2017, Darden acquired Cheddar’s Scratch Kitchen, which operated 140 company-owned restaurants and 25 franchised restaurants, for $799.0 million.

The company management has set the combined SSSG guidance for fiscal 2018 to be 1.0%–2.0%. Olive Garden’s SSSG is expected to be driven by implementing technological advancements and remodeling old restaurants. LongHorn Steakhouse’s SSSG is expected to be driven by an enhanced customer experience through improved food and service, simplified operations, and increased team member engagement.

Moving to unit growth, compared to 1,539 restaurants in fiscal 1Q17, Darden operated 1,695 restaurants by the end of fiscal 4Q17. The new restaurants along with the restaurants opened in fiscal 1Q18 are expected to drive Darden’s 1Q18 revenues. The company’s management expects to open ~35–40 new restaurants in fiscal 2018.

Peer comparisons

During the same period, Texas Roadhouse (TXRH) posted revenue growth of 11.7%, while Brinker International (EAT) and Bloomin’ Brands (BLMN) posted revenues that were 8.1% and 4.3% lower, respectively.

Outlook

In fiscal 2018, Darden’s management expects its revenues to rise 11.5%–13.0%. During the same period, analysts expect Darden to post revenues of $8.03 billion, which represents 12.0% growth from $7.17 billion in fiscal 2017.

In the next part, we’ll look at analysts’ estimated EBIT margins for fiscal 1Q18.

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