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What to Expect from Darden’s Fiscal 1Q18 Earnings

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Part 3
What to Expect from Darden’s Fiscal 1Q18 Earnings PART 3 OF 6

Darden’s EBIT Margin Is Expected to Rise in Fiscal 1Q18

Fiscal 1Q18 expectations

During fiscal 1Q18, analysts expect Darden Restaurants (DRI) to post EBIT (earnings before interest and tax) of $182.8 million, which represents EBIT margins of 9.5%. In 1Q17, the company’s EBIT margins stood at 9.4%.

Darden&#8217;s EBIT Margin Is Expected to Rise in Fiscal 1Q18

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What lowered Darden’s EBIT margins?

The expansion in Darden’s EBIT margin is expected to be driven by sales leverage from positive SSSG (same-store sales growth), lower SG&A (selling, general and administrative) expenses, and D&A (depreciation and amortization) expenses. Analysts expect the company’s SG&A expenses to fall from 8.8% to 8.5%, while D&A expenses are expected to fall from 3.9% to 3.8%.

Some of the expansion in the EBIT margins is expected to be offset by the rise in commodity prices and labor expenses. The company’s management expects commodity inflation to be 0%–1% in fiscal 2018, while the labor wages are expected to rise 3%–4%.

Peer comparisons

During the same period, Brinker International (EAT), Bloomin’ Brands (BLMN), and Texas Roadhouse’s (TXRH) EBIT margins stood at 5.8%, 4.5%, and 9.6%, respectively.

Outlook

Analysts expect Darden’s EBIT margins to improve from 9.9% in fiscal 2017 to 10.2% in fiscal 2018. The expanded EBIT margin is expected to be driven by sales leverage and lower SG&A expenses.

In the next part, we’ll look at analysts’ 1Q18 EPS estimates.

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