RRGB Red Robin Gourmet Burgers Inc

Darden Restaurants Inc (DRI) posted fourth quarter 2011 earnings of $1.00 per share, in line with the Zacks Consensus Estimate, but up 23% from the year-ago quarter's earnings of 81 cents per share.   

Total revenue jumped 6.8% from the prior-year quarter to $1,990.4 million and also edged out the Zacks Consensus Estimate of $1,990.0 million. Combined same-store sales for the company’s three core brands, Olive Garden, Red Lobster and LongHorn Steakhouse, rose 2.2% and fared better than the expected growth of 1.9% as per the Knapp-Track benchmark of U.S. same-restaurant sales. The upside in revenue was also led by significant growth in Specialty Restaurant Groups and unit expansion.

The company’s full-year earnings per share were $3.41 versus $2.86 per share in fiscal 2010. Revenues were $7.50 billion in fiscal 2011, representing a year-over-year spike of 5.4%.

Operating Highlights

By restaurant concepts, Olive Garden’s sales upped 3.9% year over year to $881.0 million in the fourth quarter, driven by revenues from 31 net new restaurants, partially offset by flat comps growth.

Sales at Red Lobster escalated 5.6% to $701.0 million attributable to revenues from four net new restaurants as well as a 3.8% rise in comps.

At LongHorn Steakhouse, sales were up 14.1% to $266.0 million attributable to a 6.0% growth in comps. Moreover, revenues from 23 net new restaurants in the quarter also contributed to the upside.

Sales at The Specialty Restaurant Groups increased 19.3% to $141.0 million, driven by comps growth of 7.9% at The Capital Grille, 2.0% at Bahama Breeze and 2.2% at Seasons 52. The growth in revenues was also due to the addition of four new Capital Grille restaurants, six new Seasons 52 restaurants and one new Bahama Breeze restaurant.

Financial Position

Darden ended fiscal 2011 with cash and cash equivalents of $70.5 million and long-term debt (less current portion) of $1407.3 million. During the quarter, Darden hiked its quarterly dividend by 34% to 43 cents per share, indicating an annual dividend of $1.72. In the fourth quarter, the company also purchased 2.3 million shares of its common stock.

Outlook

Darden expects 2012 earnings per share growth in the range of 12% to 15%, based on overall sales growth between 6% and 7%, approximately 2.5% blended same-store sales growth for its three core brands and 80 to 90 net new restaurant openings over the year.

Our Take

Darden reported better-than-expected fourth quarter results, bolstered shareholders’ value by raising its dividend and drove new restaurant growth. The company also started fiscal 2012 on an optimistic note. Moreover, management expects fiscal 2012 to be better than 2011. Hence we expect estimates to go up in the coming days. The Zacks Consensus Estimates for 2011 and 2012 are pegged at $3.41 and $3.83, respectively. 

Darden is well positioned given its strong value proposition, menu improvements, excellent unit-level execution with differentiated brands and a balanced portfolio, which provide greater diversification in sales and cost synergies. However, increasing food costs and stiff competition from peers like Brinker International inc. (EAT) and Red Robin Gourmet Burgers Inc. (RRGB) will drag profits.

Darden currently has a Zacks #3 Rank (short-term Hold rating). We also reiterate our long-term Neutral recommendation.

 
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