Darden Restaurants (NYSE: DRI)
gapped up Thursday following the company’s better-than-expected fourth-quarter results.
Not only did the company trounce easy-to-beat year-over-year comparisons, but consolidated results were just 0.5% shy of the same quarter in 2019. That’s a good indication that post-pandemic business is returning at a fast clip.
The parent company of Olive Garden, Longhorn Steakhouse, Cheddar’s, Seasons 52, The Capital Grille and other brands, earned $2.03 per share, up from a loss of $1.24 per share in the year-ago quarter. Revenue was $2.279 billion, a gain of 79% over the previous year.
The company said total same-store sales rose 90.4% and it added 30 net new restaurants. Sales at Olive Garden, Darden’s largest brand, were up 61.9%. Longhorn Steakhouse rose 107.5% and the Darden’s fine dining category, which includes Eddie V's Prime Seafood and The Capital Grille, was up 143.6%.
In addition to customers flocking back once Covid restrictions were lifted, Darden CEO Gene Lee credited the results to greater operational efficiencies.
“Over the last 15 months, we have made numerous strategic investments in our business, while streamlining our operations and improving productivity,” he said. “Given the business transformation work we have done, and the demand we are seeing from the consumer, we are well-positioned to thrive in this operating environment."
Raised Quarterly Dividend
Darden's board of directors declared a quarterly cash dividend of $1.10 per share, up 25% from the previous quarter. This dividend is payable on August 2 to shareholders of record at the close of business on July 9.
In addition, the company repurchased about 300,000 shares of common stock for a total cost of around $38 million. As of the end of fiscal 2021, Darden had approximately $463.5 million remaining under the current $500 million repurchase authorization. In other words, expect more share repurchases ahead. That may contribute to rising share price.
"Our strong operating model generates substantial cash flows and, despite a challenging year, we generated $1.2 billion in cash from operations in fiscal 2021," said CFO Raj Vennam. "As a result we repaid our term loan, reinstated our pre-Covid dividend and quickly built up our cash position. Our disciplined approach of focusing on driving profitable sales and simplifying operations positions us well for the future."
For fiscal 2022, Darden guided toward diluted net earnings per share from continuing operations of $7.00 to $7.50. Analysts expect $7.17 per share, so that would be a significant improvement over the high end of current forecasts.
Darden’s stock has been shaping a flat base since its pullback from a March 29 high of $149.73. So far, its peak-to-trough correction is 13%. A consolidation qualifies as a flat base if the correction remains less than 15%.
Low Volume During Consolidation
A flat base is among tried-and-true patterns that can lead to further price growth. Darden boasts another characteristic that’s ideal in a base: Low trading volume. That’s a signal that big investors are essentially holding or even buying at lower valuations, rather than continuing to sell.
After gapping up at the open Thursday, Darden shares were trading 3.52% higher mid-session, a gain of $4.77, to $140.22. Investors looking for an early buy point, without waiting for the price to surpass $149.73, could look at picking up some shares if the stock clears previous resistance at $148.20. Ideally, you’d like to see heavy volume accompany that price rise.
Institutions have been getting behind the stock, with the number of mutual fund owners increasing in the quarter from 1,421 to 1,463. The fund with the largest ownership of Darden in its holdings is the Washington Mutual Investors Fund, which has 4.19% of outstanding Darden shares in the portfolio.
Meanwhile, at the Catalyst/Lyons Tactical Allocation Fund, Darden shares comprise 5.25% of fund assets.
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