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Why Darden’s Fiscal 1Q18 Earnings Failed to Impress Investors

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Sep. 28 2017, Published 1:23 p.m. ET

Fiscal 1Q18 performance

Darden Restaurants (DRI) announced its fiscal 1Q18 earnings on September 26, 2017. It posted adjusted EPS (earnings per share) of $0.99 on revenues of $1.9 billion. Compared to fiscal 1Q17, EPS rose 12.5%, while revenue rose 12.9%.

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Stock performance

Analysts had forecast Darden’s EPS to be $0.99 on revenues of $1.9 billion. Despite posting earnings in line with analysts’ estimates, DRI stock fell due to lower-than-expected SSSG (same-store sales growth). As of September 27, 2017, Darden was trading at $79.15, which represents a fall of 4.8% since the announcement of its fiscal 1Q18 earnings.

The company posted SSSG of 1.7% against analysts’ estimate of 2.1%. Management blamed Hurricane Harvey for lower-than-expected SSSG, and it’s forecasting Hurricane Irma to lower SSSG by 0.60% and EPS by 3.0% in fiscal 2Q18. The fear of declining earnings appears to have led to a fall in Darden stock.

Year-to-date performance

Despite the recent fall in its stock, Darden has risen 8.8% since the beginning of 2017. During the same period, peers Texas Roadhouse (TXRH), Brinker International (EAT), and Bloomin’ Brands (BLMN) have returned 2.2%, -3.4%, and -34.0%, respectively.

Notably, the broader comparative indexes, the S&P 500 Index (SPX) and the iShares Dow Jones Select Dividend ETF (DVY), have returned 12.0% and 5.5%, respectively, year-to-date. DVY has invested 37.5% of its holdings in restaurant and travel companies.

Series overview

In this series, we’ll look at Darden’s fiscal 1Q18 performance and compare it with analysts’ estimates. We’ll also cover management’s guidance for 2017 and analysts’ estimates for the next four quarters. Finally, we’ll wrap up the series by looking at Darden’s valuation multiple and analysts’ recommendations.

First, let’s start by looking at Darden’s fiscal 1Q18 revenues.

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