First, taking a look at its quarterly results, DRI reported EPS of $1.32, beating the Capital IQ Consensus by $0.05, and up 9% from last year. The company has now met or exceeded analysts' consensus EPS estimate for at least the past eight quarters. Revenue ticked higher by 1.7% year/year to $1.88 billion, essentially inline with the $1.87 billion consensus. Consolidated same restaurant sales were higher by 0.9%, which was down a bit from Q2's +1.7% performance and Q1's +1.3% figure. But, again, for a mature company like DRI operating in a highly competitive market in a difficult environment, even modest growth is notable.
Breaking it down by brand, Eddie V's and Olive Garden were the leaders, at +4.7% and +1.4%, respectively. The turnaround at Olive Garden is particularly impressive. It wasn't too long ago that some analysts were questioning the viability of the Olive Garden brand. In its earnings press release, management stated that it was able to gain some market share during the quarter, allowing it to outperform industry-level same restaurant sales.
DRI also issued upside FY17 EPS guidance of $3.95-$4.00 vs. the $3.93 Capital IQ Consensus with same restaurant sales of +1.5%. This implies a Q4 comp of 2-3%, which would be its strongest performance of the year. Additionally, during its earnings call this morning, DRI increased its total sales growth rate guidance for FY17, seeing growth of 2.3% vs. its prior expectation of +1.7-2.7%. However, it kept its Q4 EPS guidance inline at $1.11-$1.16 vs. the $1.15 consensus.
The other big news, of course, was its announcement that it is acquiring Cheddar's Scratch Kitchen for $780 million in an all-cash deal. DRI expects the transaction to be accretive to EPS in FY18 by approximately $0.12, excluding acquisition-related expenses. The deal is expected to be completed in DRI's 4Q17. For a little background on Cheddar's, the company was founded in 1978 in Arlington, TX. It's distinguishes itself by offering made-from-scratch food at reasonable prices. As of today, it has 165 locations (DRI currently has a total of 1,545 locations) in 28 states. Cheddar's believes it has significant growth opportunities in new and existing markets given its annual restaurant sales volume of $4.4 million.
In short, the acquisition does look like a very good fit for DRI, in terms of the financials, and, the menu offerings.