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Darden Restaurants Inc DRI

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Darden Posts Robust Q1 Results, but Its Lofty Share Price Offers Less Value Than Its Restaurants

Sean Dunlop Equity Analyst

Analyst Note

| Sean Dunlop |

Narrow-moat Darden Restaurants reported strong fiscal first-quarter results, with system sales of $2.3 billion nearly 12% higher than prepandemic figures, implying just shy of 4% annualized growth. The firm defrayed input cost inflation via sales leverage and operational efficiencies, generating consolidated restaurant margins of 20.9%, nearly 3 percentage points better than two-year-ago figures (18.1%). Much of this we expect Darden to maintain, as our normalized forecast anticipates 19.8% margins, 180 basis points higher than the five-year historical average). While we have raised our fair value estimate to $128 per share from $124 as a result of lower near-term marketing expenditures and time value of money, the shares look expensive, trading at a 20%-25% premium to our fair value estimate after a 5.5% runup after the earnings release.

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Company Profile

Business Description

Darden Restaurants is the largest restaurant operator in the U.S. casual and fine dining markets, with consolidated revenue of $7.2 billion in fiscal 2021 resulting in 3.8% market share (per Euromonitor data and our calculations). The company maintains a portfolio of eight restaurant chains: Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Eddie V’s, and Bahama Breeze. Darden generates revenue almost exclusively from company-owned restaurants, though a network of 64 franchised restaurants and consumer-packaged goods sales through the traditional grocery channel contribute modestly. As of Aug. 31, the company owned 1,838 restaurants in the U.S.

1000 Darden Center Drive
Orlando, FL, 32837
T +1 407 245-4000
Sector Consumer Cyclical
Industry Restaurants
Most Recent Earnings Aug 31, 2021
Fiscal Year End May 31, 2021
Stock Type Cyclical
Employees 156,883