Excluding a one-time merger integrations charge, Darden reported that earnings fell two cents from last year’s quarter to 78 cents. This came in well above analyst projections and sent the shares up approximately 14% the day after the earnings release. Olive Garden again led the way as the only division to report an improvement in operating income. However, on balance, overall results weren’t as dour and feared and were a rarity as the casual dining industry hasn’t reported much for investors to cheer about lately.
Darden also provided full-year guidance ahead of analyst expectations. It now projects diluted earnings to be flat to down 3% from 2008, while the addition of 70 new restaurants across its concepts should lead to 9-9.5% top-line growth. The previous guidance was a fall of 5-10%. In terms of comps, it expects growth of 1.25-1.75%, which is also better than many peers are expecting. California Pizza Kitchen (Nasdaq:CPKI) and Cracker Barrel (Nasdaq:CBRL) both expect a mid-single-digit fall in comps for the coming year. (Explore the controversies surrounding companies commenting on their forward-looking expectations in Can Earnings Guidance Accurately Predict The Future?)
Based off the current share price, Darden is trading at about 13 times 2009′s estimated earnings. That’s far higher than just a few months ago, when the stock fell to $13, but at least conditions appear to be stabilizing. It’s conventional wisdom these days that a good number of consumers are tired of eating at home or are beginning to see the light at the end of the tunnel after major uncertainty over where the employment markets and economy may be heading. Stock prices across the industry have already moved to incorporate this trend, but there will be much more room for improvement when more tangible signs of economic growth become visible.
Learn more about investing in stocks such as these, in our related article Sinking Your Teeth Into Restaurant Stocks.