Earnings Stock to Watch: Darden Restaurants, Inc. (NYSE: DRI)

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Darden Restaurants, Inc. (NYSE: DRI) stock rose over 1.8% on 26th March, 2021 (as of 11:04:33 UTC-4 · USD ; Source: Google finance) after the company posted better than expected results for the third quarter of FY 21.

Restaurant expense per operating week was 16% lower than last year, on the back of lower workers’ compensation, utilities, repairs and maintenance expense. Restaurant expense as a percent of sales was 250 basis points higher than last year driven by sales deleverage. Marketing spend was $52 million lower than last year, with total marketing 200 basis points favorable to last year. As a result, the restaurant level EBITDA margin was of 18.4%, only 150 basis points below last year.

DRI in the third quarter of FY 21 has reported the adjusted earnings per share of 98 cents, beating the analysts’ estimates for the adjusted earnings per share of 72 cents, according to Zacks Investment Research. The company had reported 26.1 percent decline in the adjusted revenue to $1.73 billion in the third quarter of FY 21, beating the analysts’ estimates for revenue of $1.63 billion. Same restaurant sales declined 26.7% in the quarter.

Additionally, the company had generated more than $240 million of free cash flow this quarter, ending the third quarter with over $990 million in cash. Therefore, the company will return to the 50% to 60% dividend payout target applied to future earnings to determine the dividend. To that end, the company has declared a quarterly cash dividend of $0.88 per share, matching the pre-COVID dividend level. The ability to resume pre-COVID dividend levels just 12 months after suspending it is a testament to the strength of the business model and the durability of the cash flows. The company has also announced a new share repurchase authorization of $500 million which replaces all previous authorizations.

For the fourth quarter ending in May, Darden Restaurants expects its per-share earnings to be in the range of $1.60 to $1.70. Analysts surveyed by Zacks had forecast adjusted earnings per share of $1.27. The company expects revenue to be in the range of $2.1 billion for the fiscal fourth quarter. Analysts surveyed by Zacks had expected revenue of $1.93 billion. For the fourth quarter, the company expects EBITDA to be between $345 million and $360 million.

For the full year 2021, the company expects capital expenditures to be between $285 million and $295 million, and DRI anticipate opening 33 net new restaurants for the year. The company expects total capital spending to be between $350 million and $400 million and open approximately 35 new restaurants in fiscal ’22.

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