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Darden Restaurants (DRI +2%) is heading modestly higher today after wrapping up FY24 on positive note. This operator of several restaurant chains (Olive Garden, LongHorn Steakhouse, Ruth's Chris) reported decent upside for both EPS and revenue with its Q4 (May) report this morning. The company also increased its dividend by 6.9% to $1.40 per share.

• Our initial thought is that it was good to see DRI get back to reporting EPS upside following a rare miss in Q3 (Feb). The stock had been pulling back since the Q3 miss in March and we think investors were nervous heading into this report. And in Q3, it was not just the EPS miss but some cautionary comments on the Q3 call. As such, while the Q4 upside was fairly modest, we think this report calmed some nerves that DRI might report back-to-back misses.
• Turning to same-restaurant sales, a key metric, DRI reported flat consolidated comps. This was comprised of Olive Garden at -1.5%, Longhorn Steakhouse at +4.0%, Fine Dining at -2.6% and Other at -1.1%. That was a bit better than DRI's Q3 comps of -1.0% (OG -1.8%; LH +2.3%; Fine Dining -2.3%). DRI notes that while its overall comps were flat, that still outpaced the industry by 80 basis points and same-restaurant guest counts exceeded the industry by 130 bps. DRI feels this was impressive when you consider the increased levels of discounting and promotional activity by some competitors within casual dining.
• DRI guides only for full year comps, so it was important that we got our first look at FY25 comp guidance: +1-2%. That is roughly similar to FY24's comp of +1.6% (OG +1.6%, LH +4.7%, FD -2.4%). DRI started to see a little bit more weakness in the back half of FY24, which impacted FY25 guidance. However, DRI expects traffic tends to gradually improve throughout the year. It did note that Thanksgiving shifts from Q2 into Q3. So its Q2 comp might look better while Q3 will be the opposite.
• DRI says consumers are generally concerned about inflation, and they are becoming more concerned about the job market. As such, DRI is seeing some behavior shifts that it had already started to see. In Q4, transactions from lower income consumers were lower than last year and that was even more pronounced with consumers below $50,000. These impacts were even greater in its Fine Dining brands.

Overall, this was a good quarter for Darden. We think the bar was pretty low with some negativity priced in, as evidenced by the pullback in the stock since the Q3 report. We think investors were happy to see DRI get back to reporting EPS upside. Also, comps got back to flat after a rare negative comp in Q3. We also think investors are ok with Darden's +1-2% comp guidance for FY25. We were a bit fearful we could see negative comp guidance. And finally, we view the pretty hefty dividend hike as a sign of confidence from management. When you combine the impact from the share price pullback with the dividend raise, that computes as a nice yield of 3.6%.