Analyst Note| Sean Dunlop |
Narrow-moat Darden reported mixed third-quarter results, with revenue of $2.45 billion and diluted EPS of $1.93 slightly behind our forecasts of $2.54 billion and $2.02. Top-line pressure was unsurprising, given an omicron-induced decline in guest traffic during February, and the trifecta of sick pay, sales deleverage, and inflation was a $0.30 drag on earnings. All else equal, we take a positive view of the quarter, with revised guidance effectively suggesting a stronger fourth quarter than previously expected, while a 6% anticipated pricing increase (up from 3.7% in the third quarter) should better defray inflation. As we juggle the impacts of better-than-expected consumer demand, the removal of our prior forecast for a 5-point bump in the U.S. tax rate, and softer third-quarter results, we expect to raise our $128 fair value estimate by a mid-single-digit percentage.