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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) is likely to benefit from its off-premise business, technological enhancements and the LongHorn business. However, a rise in commodity and labor costs is a concern.
Let’s discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
Darden continues to benefit from its robust off-premise sales. During second-quarter fiscal 2023, off-premise sales contributed 25% to total sales at Olive Garden, 14% at LongHorn and 13% at Cheddar's Scratch Kitchen. 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.
Darden focuses on technological enhancements to drive growth. In fiscal 2022, the company implemented new technological platforms, paving the 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. To enhance guest convenience and make To-go services more efficient, the company initiated the rollout of online payment for call-in orders. During second-quarter fiscal 2023, 62% of all off-premise sales were placed digitally. 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 improvements in the business model are likely to reinforce its ability to boost restaurant value across its brands.
Increased focus on LongHorn business bodes well. The company strives to attract its guests by focusing on the core menu and 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. During the fiscal first quarter, sales at LongHorn were up 9.7% year over year to $600.5 million. Comps in the segment climbed 7.3% year over year compared with a 4.2% growth reported in the previous quarter. Also, the company stated that average weekly sales were above pre-covid levels. Sales are supported by various initiatives and personalized services, which are likely to drive long-term growth.
Concerns
Image Source: Zacks Investment Research
In the past three months, shares of Darden have gained 4.7% compared with the industry’s 8% rise. The downside was mainly due to inflationary pressures. Although most dining services are open, traffic is still low compared with the pre-pandemic level. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
In the fiscal second quarter, total operating costs and expenses increased 11% year over year to $2,253.3 million. This escalation was primarily due to a rise in food and beverage costs (driven by commodities inflation of approximately 13%), restaurant expenses (owing to utilities inflation) and labor costs (owing to labor inflation of 7%). For fiscal 2023, the company expects total inflation of 7% and commodities inflation between 8-9%.
Tecnoglass currently sports a Zacks Rank #1. Shares of the company have gained 17.2% in the past year.
The Zacks Consensus Estimate for TGLS’ 2023 sales and earnings per share (EPS) suggests growth of 11.2% and 9%, respectively, from the year-ago period’s reported levels.
Wingstop currently sports a Zacks Rank #1. WING has a long-term earnings growth rate of 12%. Shares of WING have lost 20.1% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.4% and 16.1%, respectively, from the year-ago period’s reported levels.
Yum China currently carries a Zacks Rank #2 (Buy). YUMC has a long-term earnings growth rate of 11%. Shares of YUMC have gained 10.3% in the past year.
The Zacks Consensus Estimate for Yum China’s 2023 sales and EPS suggests growth of 14.2% and 56.7%, respectively, from the year-ago period’s reported levels.
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Here's Why You Should Retain Darden (DRI) in Your Portfolio
Darden Restaurants, Inc. (DRI - Free Report) is likely to benefit from its off-premise business, technological enhancements and the LongHorn business. However, a rise in commodity and labor costs is a concern.
Let’s discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
Darden continues to benefit from its robust off-premise sales. During second-quarter fiscal 2023, off-premise sales contributed 25% to total sales at Olive Garden, 14% at LongHorn and 13% at Cheddar's Scratch Kitchen. 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.
Darden focuses on technological enhancements to drive growth. In fiscal 2022, the company implemented new technological platforms, paving the 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. To enhance guest convenience and make To-go services more efficient, the company initiated the rollout of online payment for call-in orders. During second-quarter fiscal 2023, 62% of all off-premise sales were placed digitally. 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 improvements in the business model are likely to reinforce its ability to boost restaurant value across its brands.
Increased focus on LongHorn business bodes well. The company strives to attract its guests by focusing on the core menu and 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. During the fiscal first quarter, sales at LongHorn were up 9.7% year over year to $600.5 million. Comps in the segment climbed 7.3% year over year compared with a 4.2% growth reported in the previous quarter. Also, the company stated that average weekly sales were above pre-covid levels. Sales are supported by various initiatives and personalized services, which are likely to drive long-term growth.
Concerns
Image Source: Zacks Investment Research
In the past three months, shares of Darden have gained 4.7% compared with the industry’s 8% rise. The downside was mainly due to inflationary pressures. Although most dining services are open, traffic is still low compared with the pre-pandemic level. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
In the fiscal second quarter, total operating costs and expenses increased 11% year over year to $2,253.3 million. This escalation was primarily due to a rise in food and beverage costs (driven by commodities inflation of approximately 13%), restaurant expenses (owing to utilities inflation) and labor costs (owing to labor inflation of 7%). For fiscal 2023, the company expects total inflation of 7% and commodities inflation between 8-9%.
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) , Wingstop Inc. (WING - Free Report) and Yum China Holdings, Inc. (YUMC - Free Report) .
Tecnoglass currently sports a Zacks Rank #1. Shares of the company have gained 17.2% in the past year.
The Zacks Consensus Estimate for TGLS’ 2023 sales and earnings per share (EPS) suggests growth of 11.2% and 9%, respectively, from the year-ago period’s reported levels.
Wingstop currently sports a Zacks Rank #1. WING has a long-term earnings growth rate of 12%. Shares of WING have lost 20.1% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.4% and 16.1%, respectively, from the year-ago period’s reported levels.
Yum China currently carries a Zacks Rank #2 (Buy). YUMC has a long-term earnings growth rate of 11%. Shares of YUMC have gained 10.3% in the past year.
The Zacks Consensus Estimate for Yum China’s 2023 sales and EPS suggests growth of 14.2% and 56.7%, respectively, from the year-ago period’s reported levels.