Veteran trader reviews Olive Garden parent stock price after earnings

It all started with the Green Frog.

Which will sound like the origin of Jim Henson's bio and how the creator of The Muppets came up with Kermit the Frog.

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But which is easily the story of Bill Darden, an American businessman and namesake of Darden Restaurants (DRI) , the multibrand restaurant operator.

In 1938, Darden used to be just 19 when he opened his first restaurant, The Green Frog, in Waycross, Ga. Darden went on to open the first Red Lobster restaurant in Lakeland, Fla., in 1968.

The chain — which recently exited Chapter Eleven economic ruin protection — used to be sold to General Mills (GIS) in 1970 and went through quite a history. General Mills later spun off its restaurant business and named the new company after Darden.

Darden Restaurants sold Red Lobster in 2014 and at the present time the corporate owns such brands as Olive Garden, Longhorn Steakhouse, Cheddar's Scratch Kitchen, Yard House, Capital Grille, Seasons 52, Bahama Breeze, and Eddie V's.

The corporate said in July that it used to be acquiring the Austin Tex-Mex chain Chuy’s in a $605 million all-cash deal which is slated to close next month.

Darden CFO notes 'significant step down'

The restaurant industry has been taking some hits at the present.

Grocery and restaurant prices continue to upward thrust while overall inflation slows. Restaurant prices are climbing at a tons higher rate than groceries, per Vericast's 2024 Restaurant TrendWatch. Restaurant costs spiked 5.1% annually, while groceries rose 1.2%.

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More than two-thirds (sixty eight%) of respondents said they were trading down from restaurant meals to food from the grocery store to guide clear of the rising costs, the marketing-services and products firm said. More than seventy one% of Gen Z and Millennials said they were doing so.

Further, consumers are looking at special deals when choosing to dine out, with 30% of respondents saying they could now no longer are attempting a restaurant without a chit or bargain offer.

Darden Restaurants has been feeling the pressure. The corporate's first-quarter earnings report on Sept. 19 missed Wall Side road's forecasts.

"While we fell wanting our expectations for the first quarter I in fact have self belief within the strength of our business and I'm confident that the strategy we developed nearly 10 years ago remains to be the right kind one for our company," Chief Executive Ricardo Cardenas told analysts at some point of the earnings call.

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As for the numbers, Darden earned $1.Seventy five a share within the quarter, up from $1.fifty nine a year earlier but wanting Wall Side road’s call for $1.83.

Revenue rose 1% to $2.Seventy six billion but missed analysts’ consensus estimate of $2.Eight billion. Same-store sales declined 1.1% within the quarter.

"June same restaurant sales trends were consistent with our fiscal 2024 fourth quarter results and we were surprised by the many step down in traffic origin with the 4th of July holiday," Chief Financial Officer Raj Vennam said.

"Nevertheless sales trends rebounded in August, resulting in flat same restaurant sales for the month. The first three weeks of September have further improved, resulting in positive same restaurant sales quarter to date for all of our segments, as opposed to fine dining," he added.

On the plus side, Darden maintained its full-year outlook and noted bettering sales trends.

And the corporate announced a multiyear delivery partnership with Uber (UBER) . The venture is about at first a limited selection of Olive Garden locations later this year, with national expansion on the restaurant chain expected by May 2025.

"We began having more serious discussions about Uber Direct in April and our teams began engaged on the systems integrations in May," Cardenas said.

"It used to be apparent to us that the reply addressed our concerns. From a guest standpoint it protects the in-restaurant experience as drivers will percent up orders curbside within the identical manner our guests do at the present time."

"It also enhances the takeout experience by giving guests find out tips on find out how to have a person else percent up their order," he said.

Raymond James, Morgan Stanley upbeat on DRI

A few investment firms weighed in on Darden's results, including Raymond James, which raised its price target on the corporate to $187 from $100 and sixty and affirmed an outperform rating on the shares.

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Darden reported “soft” first-quarter results, which have been greater than offset by stronger quarter-to-date trends and optimism about Olive Garden's launch of delivery with Uber, the analyst tells investors in a research note.

The investment firm estimates that over time the Uber partnership may perchance prove which will add low- to mid-single-digit-% incremental sales.

Morgan Stanley raised the firm's price target on Darden to $188 from $175 and maintained an overweight rating on the shares.

The Darden story “hadn't been resonating at the present, as a minimum from the investor standpoint,” but “that has clearly shifted with some new drivers elaborated,” the investment firm said. The Uber partnership is “the 000 news” from the corporate's first-quarter report, the firm said.

Morgan Stanley said it'd still are awaiting some short-term volatility, however it adds that Uber, along with new product, limited-time offers, price-pointed marketing, and speed of service factors should drive the corporate.

Veteran trader: DRI balance sheet 'tough to to know about'

TheStreet Pro's Stephen Guilfoyle also took a to know about Darden's numbers and failed to come away satisfied.

"This balance sheet is a tough one to to know about," he said. "The present ratio is actually sort of atrocious. Short-term debt seriously outweighs cash on hand, meaning the debt will needs to be rolled over, likely at higher rates of interest. Only 1 man's opinion, but the balance sheet is now no longer in good condition."

The veteran trader said that positive cash flows may perchance correct that problem, adding that "essentially the most basic issue there's likely to be that money flows are not that positive, and the firm spends extra cash than it creates on share repurchases and cash dividends."

"In some unspecified time in due course, I might speculate, the repurchases would should stop and the dividend will needs to be reduced," he said. "Either that, or the fundamentals remain messy (polite term) indefinitely."

Guilfoyle said he will be shorting Darden Restaurants, betting on a drop within the stock price.

“I cannot see myself investing in a corporation with such weakness within the fundamentals, but I am going to short the sort of corporation, especially when simplest 7% of the go with the flow is held in brief positions,” he said.

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