Darden Restaurants slides on weak guidance: ‘I’d be looking to buy’

Darden Restaurants Inc (NYSE: DRI) on Friday said its financial results for the second quarter topped Street estimates. Shares still closed nearly 5.0% down on weak guidance.

Delano Saporu likes the stock

On CNBC’s “Closing Bell”, New Street Advisors’ Delano Saporu said he’d be interested in buying DRI on recent weakness.

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Darden is raising wages, and its CEO was focused on profitability. Their fine dining business is the primary driver of same-restaurant growth. Fine dining, how they’re doing digitally, and labour availability, that’s what I look in restaurants. So, there are headwinds, but it’s a good stock.

Darden had planned to raise hourly wages to $11 in January 2022 but said it’ll now pay an even higher $12 an hour as of January 1^st.

Key takeaways in the Q2 report

Darden reported $193.2 million in net income ($1.48 per share) versus the year-ago figure of $96 million only (73 cents per share). At $2.272 billion, its quarterly sales noted an annualised growth of 37%.

According to FactSet, experts had forecast $1.43 of EPS on $2.23 billion in sales. A 34.4% growth in comparable sales was in line with the FactSet consensus.

Sales were up 29.3% at Olive Garden, 31.2% at Longhorn Steakhouse, and 61.6% at its fine dining business (The Capital Grille and Eddie V’s).

Guidance for the future

For the full financial year, Darden expects up to $7.60 of per-share earnings, $9.55 billion to $9.70 billion in sales, and between 29% and 31% growth in same-restaurant sales. While the sales forecast topped FactSet consensus, analysts had called for a higher EPS of $7.62 and a 32.6% increase in comparable sales.

In a separate announcement, the restaurant company said its CEO Eugene Lee will retire in May. Darden named COO Ricardo Cardenas as its new chief executive and said Lee will serve as executive chairman until the shareholders meeting of 2022.