EmailIn an attempt to become less promotional last quarter Darden Restaurants (DRI 104.11, +10.84, +11.6%) announced it would not be employing its popular buy-one-take-one promotion. After Darden unveiled this change last quarter the stock got hammered about 7%, but investors appear to have forgotten all about that as the stock moves to all-time highs following this morning’s fourth quarter print.
Specifically, for the fourth quarter Draden saw earnings per share beat market expectations at $1.39 with a $0.02 favorable impact related to the net benefit of deferred tax revaluation, and a $0.01 unfavorable impact related to Cheddar’s integration costs.
Total fourth quarter sales grew 10.3% to $2.13 billion while blended same-restaurant sales from Darden's legacy brands outperformed market expectations with an increase of 2.2% helped by same-restaurant sales growth of 2.4% at both Olive Garden and LongHorn Steakhouse, though, same-restaurant sales for Cheddar's Scratch Kitchen were -4.7%. Original Cheddar company restaurants were down 3.3%, while the acquired franchise restaurants were down 7%
Restaurant-level EBIT margins were up 20 basis points to about 19.5% as management noted that overall, restaurant labor was an unfavorable 90 basis points as continued wage pressures, work force investments and Cheddar's brand mix offset pricing and productivity gains; Restaurant expense was 40 basis points favorable due to sales leverage and workers compensation expenses.
As to guidance for fiscal 2019, Darden sees same-restaurant sales growth of 1.0-02.0% on 45-50 new restaurants. Total sales growth is expected between 4.0-5.0%, which equates to about $8.4-8.48 billion. The company sees total capital spending for the year of $425-475 million on total inflation of around 2.0%. Darden expects a 2019 effective tax rate of 11-12% and diluted net earnings per share from continuing operations of $5.40-5.56.
In an attempt to increase shareholder return and optimize capital allocation Darden also announced an increase to its quarterly dividend. The company will pay a $0.75 per share dividend to shareholders on August 1, 2018. Darden's Board of Directors also authorized a new share repurchase program under which the company may repurchase up to $500 million of its outstanding common stock.
