What Olive Garden And LongHorn Steakhouse Tell Us About Darden

Darden Restaurants, Inc. DRI, the parent company of Olive Garden and LongHorn Steakhouse among others, reported Thursday fiscal first-quarter results highlighted by a continued sales recovery and the reinstatement of its dividend. The stock traded sharply higher and sits around $96.24 per share.

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

Raymond James analyst Brian Vaccaro maintains an Outperform rating on Darden's stock with a price target lifted from $100 to $115.

Credit Suisse analyst Lauren Silberman maintains an Outperform rating on Darden with a price target lifted from $95 to $112.

MKM Partners analyst Brett Levy maintains a Buy rating on Darden with a price target lifted from $110 to $115.

BMO Capital Markets analyst Andrew Strelzik maintains a Market Perform rating on Darden with a price target lifted from $84 to $96.

KeyBanc Capital Markets analyst Eric Gonzalez maintains an Overweight rating on Darden with a price target lifted from $102 to $108.

See Also: Darden's Earnings Report Signals Improving Trends, Dividend Reinstated

Raymond James: Quarter Recap

Darden's sales were down 28.4% year over year to $1.53 billion and this was short of expectations by $16 million, Vaccaro wrote in a note. Olive Garden's revenue was down 29% in the quarter and this compares unfavorably to the broader casual dining industry that recorded a 25.8% decline, according to Knapp Track data. The underperformance can be attributed to a lack of exposure to third-party delivery platforms.

There were some positive takeaways in the quarter, including store margins falling just 23 basis points to 17.8% due to "surprising" labor leverage and lower marketing costs. The company also reinstated its 30 cents per share quarterly dividend and closed a $270 million one-year term loan.

Credit Suisse: Recovery Story

Darden's report showed sales continued to recover from COVID-19 lows although same-store sales were still down 29% in the quarter, including negative 28.2% at Olive Garden and negative 18.1% at LongHorn, Silberman wrote in a note. But same-store sales at restaurants open for limited capacity fared better at negative 21.1% at Olive Garden and negative 11.3% at LongHorn.

Management guided its fiscal second-quarter Adjusted EBITDA at $200 million to $215 and this is "well above" expectations for $155 million. The company also noted it can recover 100% of EBITDA when it regains just 90% of prior level sales. The company deserves credit for this outlook and reinforces the longer-term top- and bottom-line outlook.

MKM: Sales Recovery

Olive Garden and LongHorn's triple-digit off-premise growth is credited with supporting a sales recovery as it accounted for 45% of sales and 28% of sales, respectively, Levy wrote in a note. This signals the "strength" of Darden's large brands during an uncertain landscape.

Management's comments that a full EBITDA recovery requires 90% of prior sales is encouraging moving forward. Darden noted it expects 5% to 15% of competitors' stores could close in the future while Darden proceeds with plans to open new stores.

Some stores opened in the reported quarter and more are "set to open at any moment," the analyst wrote. In total, the company expects to open 35 to 40 new stores during the fiscal year. To date, management offered no indication it will slow down its pace of growth although that could change at any point.

BMO: Conservative Guidance

Darden's sales recovery is proceeding "somewhat slower" than expected although the company's performance is constrained by capacity rules and guidelines, Strelzik said. However, Darden continues to experience strong demand and sales should recover as dine-in rules are eased.

"There's no reason to believe DRI AUVs can't get back to pre-pandemic levels, especially given meaningful marketing has yet to resume and likely enhanced off-premise contributions moving forward," the analyst wrote.

KeyBanc: Guidance Implies Uncertainty

Darden guided its fiscal second-quarter revenue to be down 18% on a year-over-year basis and this is slightly below the fiscal first-quarter exit rate, Gonzalez wrote in a note. The guidance signals expectations for no easing of current headwinds and reflects "ongoing uncertainty."

Even when capacity limits are removed, the company may not be able to bring back the fan-favorite all-you-can-eat pasta, the analyst said. This concept helped Darden achieve multi-year segment margin highs of 22.1% prior to the pandemic.

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