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Here's Why You Should Retain Darden (DRI) in Your Portfolio
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Darden Restaurants, Inc. (DRI - Free Report) will likely benefit from technological enhancements and an off-premise business model. Also, emphasis on LongHorn business bodes well. However, a decline in traffic (from pre-pandemic levels) and inflationary pressures are a concern.
Let’s discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
Darden focuses on technological enhancements to drive growth. In fiscal 2022, the company implemented new technological platforms, paving a path for improved digital engagement and strengthening marketing and analytics capabilities. Also, it continued improving its online and mobile ordering system (for Olive Garden and LongHorn Steakhouse) and accelerating the rollout of online and mobile ordering and payment systems across other brands. The company emphasized on developing sophisticated customer relationship management programs, data analytics, and data-driven marketing approaches to target existing and potential guests across its portfolio of brands. The initiative allows the company to tailor messages and offerings depending on guest visit history, preferences and brand loyalty. Going forward, DRI remains optimistic in this regard and anticipates the initiatives to boost restaurant value across its brands.
Even though capacity restrictions continue to ease, off-premise sales remained strong during fourth-quarter fiscal 2022. During the quarter, off-premise sales contributed more than 25% to total sales at Olive Garden and 15% at LongHorn. Notably, the company has been benefitting from technological enhancements regarding online ordering and To Go capacity management. Given the solid feedback on account of enhanced customer experience and reduced friction, the company expects off-premise sales to remain elevated for some time. The company intends to revamp its point-of-sale system to boost guest experience and manage off-premise offerings.
Increased focus on LongHorn business bode well. The company strives to attract its guests by focusing on the core menu, culinary innovation and providing regional flavors. It is also working on its marketing strategy to improve execution, customer relationship management and digital advertising. It has a strong promotional pipeline that leverages the segment’s expertise. The company is focused on strengthening its in-restaurant execution through investments in quality, improving staffing levels and simplifying operations to enhance the guest experience. During the fiscal fourth quarter, sales at LongHorn were up 13.2% year over year to $647.3 million. Sales are being supported by various initiatives and personalized services, which are likely to drive long-term growth.
Concerns
Image Source: Zacks Investment Research
Shares of Darden have declined 14.6% so far this year compared with the industry’s 13.2% fall. The dismal performance was primarily caused by the coronavirus crisis. A slowdown in consumer traffic and supply chain disruptions had taken an enormous toll on the company. Although most dining services are open, traffic is still low compared with pre-pandemic levels. Going forward, the company intends to monitor the situation regularly to gauge the impacts of COVID-19.
The company has been persistently shouldering increased expenses, which are denting margins. In the fiscal fourth quarter, total operating costs and expenses increased 15.8% year over year to $2,264.7 million. This escalation was primarily due to a rise in food and beverage costs, restaurant expenses and labor costs. For fiscal 2023, the company expects total inflation of 6%, commodities inflation of 7% and total restaurant labor inflation (including hourly wage inflation) of 8%.
Tecnoglass sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 24.4%, on average. Shares of the company have increased 21.1% in the past three months.
The Zacks Consensus Estimate for Tecnoglass 2022 sales and earnings per share (EPS) suggests growth of 28.2% and 47.7%, respectively, from the year-ago period’s levels.
Cracker Barrel carries a Zacks Rank #2 (Buy). Cracker Barrel has a long-term earnings growth of 6.9%. Shares of the company have increased 19% in the past three months.
The Zacks Consensus Estimate for Cracker Barrel’s 2022 sales and EPS suggests growth of 16.3% and 15.4%, respectively, from the year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2. Arcos Dorados has a long-term earnings growth of 34.4%. Shares of the company have increased 4.3% in the past three months.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 27.1% and 104.2%, respectively, from the year-ago period’s levels.
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Here's Why You Should Retain Darden (DRI) in Your Portfolio
Darden Restaurants, Inc. (DRI - Free Report) will likely benefit from technological enhancements and an off-premise business model. Also, emphasis on LongHorn business bodes well. However, a decline in traffic (from pre-pandemic levels) and inflationary pressures are a concern.
Let’s discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
Darden focuses on technological enhancements to drive growth. In fiscal 2022, the company implemented new technological platforms, paving a path for improved digital engagement and strengthening marketing and analytics capabilities. Also, it continued improving its online and mobile ordering system (for Olive Garden and LongHorn Steakhouse) and accelerating the rollout of online and mobile ordering and payment systems across other brands. The company emphasized on developing sophisticated customer relationship management programs, data analytics, and data-driven marketing approaches to target existing and potential guests across its portfolio of brands. The initiative allows the company to tailor messages and offerings depending on guest visit history, preferences and brand loyalty. Going forward, DRI remains optimistic in this regard and anticipates the initiatives to boost restaurant value across its brands.
Even though capacity restrictions continue to ease, off-premise sales remained strong during fourth-quarter fiscal 2022. During the quarter, off-premise sales contributed more than 25% to total sales at Olive Garden and 15% at LongHorn. Notably, the company has been benefitting from technological enhancements regarding online ordering and To Go capacity management. Given the solid feedback on account of enhanced customer experience and reduced friction, the company expects off-premise sales to remain elevated for some time. The company intends to revamp its point-of-sale system to boost guest experience and manage off-premise offerings.
Increased focus on LongHorn business bode well. The company strives to attract its guests by focusing on the core menu, culinary innovation and providing regional flavors. It is also working on its marketing strategy to improve execution, customer relationship management and digital advertising. It has a strong promotional pipeline that leverages the segment’s expertise. The company is focused on strengthening its in-restaurant execution through investments in quality, improving staffing levels and simplifying operations to enhance the guest experience. During the fiscal fourth quarter, sales at LongHorn were up 13.2% year over year to $647.3 million. Sales are being supported by various initiatives and personalized services, which are likely to drive long-term growth.
Concerns
Image Source: Zacks Investment Research
Shares of Darden have declined 14.6% so far this year compared with the industry’s 13.2% fall. The dismal performance was primarily caused by the coronavirus crisis. A slowdown in consumer traffic and supply chain disruptions had taken an enormous toll on the company. Although most dining services are open, traffic is still low compared with pre-pandemic levels. Going forward, the company intends to monitor the situation regularly to gauge the impacts of COVID-19.
The company has been persistently shouldering increased expenses, which are denting margins. In the fiscal fourth quarter, total operating costs and expenses increased 15.8% year over year to $2,264.7 million. This escalation was primarily due to a rise in food and beverage costs, restaurant expenses and labor costs. For fiscal 2023, the company expects total inflation of 6%, commodities inflation of 7% and total restaurant labor inflation (including hourly wage inflation) of 8%.
Zacks Rank & Key Picks
Darden currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Tecnoglass Inc. (TGLS - Free Report) , Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) and Arcos Dorados Holdings Inc. (ARCO - Free Report) .
Tecnoglass sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 24.4%, on average. Shares of the company have increased 21.1% in the past three months.
The Zacks Consensus Estimate for Tecnoglass 2022 sales and earnings per share (EPS) suggests growth of 28.2% and 47.7%, respectively, from the year-ago period’s levels.
Cracker Barrel carries a Zacks Rank #2 (Buy). Cracker Barrel has a long-term earnings growth of 6.9%. Shares of the company have increased 19% in the past three months.
The Zacks Consensus Estimate for Cracker Barrel’s 2022 sales and EPS suggests growth of 16.3% and 15.4%, respectively, from the year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2. Arcos Dorados has a long-term earnings growth of 34.4%. Shares of the company have increased 4.3% in the past three months.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 27.1% and 104.2%, respectively, from the year-ago period’s levels.