It's been so long. Darden Restaurants (DRI) reported the firm's fiscal third quarter performance on Thursday morning. The results were impressive. So was the guidance. So were a number of actions being taken by management. Yes, I wish I bought these shares on the Wednesday dip. I did not. Now, plan B.
That said, as I work through writing this piece, I just look at the Darden Brands, and my mouth waters. It has been more than a year since I have eaten out, unless you count a park bench. The Olive Garden (almost half of Darden's business), a chain that as an arrogant New Yorker, I had often mocked because in New York, we have "real" Italian restaurants, or we did before everyone who could, moved to Miami. Longhorn Steakhouse, Cheddar's, Bahama Breeze. I have frequented them all at times. The Capital Grille. There's one about a block north of the New York Stock Exchange. How many deals were put together in that place? Gee whiz.
Pent up demand? You could say that. Then again, I am lucky. Twice over. COVID hasn't killed me, at least not yet, and I have been able to work... even through an absurdly long bout with the illness and the syndrome that often follows. So many others. Unable to work. Or worse. Sure would be nice to take Patty Ann out for a nice meal... with a table, chairs, a wait staff and everything.
Down To Business
For the period (Q3) reported, Darden posted EPS (real GAAP, no adjustments) of $0.98, crushing expectations that were down in the high $0.60's. The firm put a revenue print of $1.73 billion to the tape, -26.4% y/y, but better than Wall Street had projected. Same store sales were all over the map by brand, but in aggregate landed -26.7%, far better than the -31.2% that we all were looking for. The largest slice of the pie... Olive Garden experienced same store sales "growth" of -25.8%, while Longhorn (my favorite in the group) came back even stronger at just -12.8%. Understandably, fine dining will have a longer road to recovery, with far fewer people of means remaining in cities and almost no businesses currently "expensing" the "entertainment" of clientele...The Capital Grille (-45.2%) and its ilk will have a tougher go of it. Stay with me. The overall story gets even better.
Darden Restaurants is projecting current (Q4) quarter total sales of a rough $2.1 billion, above consensus of $1.95 billion. The firm sees EBITDA of $345 million to $360 million, leading to EPS from continuing operations of $1.60 to $1.70. Consensus there is way down around $1.24. In fact, Darden reported positive same store sales growth in mid-March as the calendar has started to lap comparisons that represent the locked down environment of spring 2020.
The firm has big plans regarding the return of capital to shareholders, while increasing wages for employees. Psst... this firm is coming out of the pandemic in pretty decent shape. The firm's board has authorized a new share repurchase program replacing the old one, worth up to $500 million worth of stock with no expiration date. The firm has also decided to increase the quarterly dividend from the pandemic reduced $0.37, back up to the pre-pandemic level of $0.88, jumping the yield from 0.5% up to 2.6%. The new dividend will be payable on May 3rd to shareholders of record on April 9th.
Lastly, we'll talk about wages. The firm plans to spend approximately $17 million on one time bonuses for hourly wage employees, while bringing every employee making less than $10 per hour up that level (including tips). By January 2022, the firm plans to bring hourly wages up to $11, and by January 2023, $12.
Close up, we see the shares of DRI have more or less found support close to the 50 day SMA and have now retaken the swing trader's favorite average, the 21 day EMA. I don't like the unfilled gap down between the $100 and $105 levels that I see from back in November. All rules have exceptions. Let's hope that is one of them.
Stepping back a bit, we see that DRI has colored within the lines of technical analysis very nicely. Last spring, the last sale strictly obeyed standard Fibonacci retracement levels coming off of the extreme lows. Then starting with the lows of last May, not only has DRI obeyed the Pitchfork model, the shares have almost never strayed outside of the lower chamber of that Pitchfork.
You know what they say about the Andrews' Pitchfork? Actually, they don't say anything. I may be that last trader on the planet still using Pitchforks to project trends. You would think "they" would learn, I keep outlasting all of them. Well, anyway, they used to say... "It ain't broke til' it's broke", and this one my friends... ain't broke. DRI, as long as the shares do not drop below the lower trend line anytime soon, will hit $160 before reporting earnings again in June. That's my opinion. I expect to be long at least some shares (on weakness) prior to April 9th, so they can pay me just for showing up.