Every restaurant has its secret recipes and Darden Restaurants (DRI 93.06, +2.98, +3.2%), the operator of the Olive Garden and LongHorn Steakhouse brands, is no different. Darden Restaurants, though, appears to have a recipe for operating success that helped it stand out from the crowd in its fiscal fourth quarter ended May 28.
The proof of point is in its same-restaurant sales, which increased 3.3%. That increase was powered by a 4.4% increase in same-restaurant sales at Olive Garden and a 3.5% increase in same-restaurant sales at LongHorn Steakhouse. In fact, every brand operated by Darden registered an increase in same-restaurant sales, with the exception of Seasons 52 (-1.3%).
The combined strength fueled an 8.1% year-over-year increase in consolidated sales of $1.93 billion. Olive Garden and LongHorn Steakhouse, which accounted for 76% of total sales in the period, registered sales increases of 4.6% and 5.7%, respectively.
Importantly, same-restaurant traffic and pricing increased at those core brands, underscoring the appeal they held for customers. In other words, higher prices did not dissuade customers from dining at those restaurants.
Pricing power has been hard to come by in the restaurant industry, yet Darden has been able to establish some with attractive menu offerings, service, and a restaurant atmosphere that have increased customer loyalty.
Darden Restaurants was able to leverage its sales strength to drive a 5.8% increase in adjusted earnings from continuing operations of $148.8 million. Diluted net earnings per share of $1.18 were up 7.3% year-over-year and ahead of analysts' average expectation.
Management is looking for the growth to continue, too.
Fiscal 2018 sales are anticipated to increase 11.5% to 13.0%, with same-restaurant sales growth of 1.0% to 2.0%, and adjusted diluted net earnings per share from continuing operations, which exclude Cheddar's integration related expenses, are expected to range from $4.38 to $4.50. The midpoint of that range is 10.5% above comparable fiscal 2017 earnings per diluted share of $4.02.
At its current price, DRI trades at roughly 21x its estimated fiscal 2018 earnings per share, which is roughly twice the projected earnings per share growth rate. Valuation concerns, then, could start to percolate as a headwind for the stock, which is trading at an all-time high and 23% above its 200-day simple moving average.
In conjunction with its earnings results, Darden announced that its Board of Directors approved a 12.5% increase in the quarterly dividend to $0.63 per share, which translates to an attractive dividend yield of 2.70%.