Darden Restaurants' fiscal second-quarter earnings report is anticipated next week, reflecting a challenging macro environment. However, trends at Olive Garden are expected to see improvement in the latter half of the year, per UBS Securities' recent insights. The brokerage forecasts Darden's second-quarter same-store sales growth at 1.1%, which falls short of the 1.7% consensus.
This projection indicates a modest 0.8% rise at Olive Garden and a more robust 4% improvement at Longhorn Steakhouse. Investors have expressed concern over a potential miss in fine dining and downward pressure on earnings per share, as outlined in the research report. UBS has adjusted its earnings per share target to $2, down from $2.02, moving further beneath the $2.03 consensus. Darden's earnings performance is expected to reflect the effects of a tough macro environment and intense competition in the casual dining sector.
"We expect a challenged macro and casual dining competition likely pressured results across brands," stated UBS analyst Dennis Geiger. Darden is scheduled to announce second-quarter results on December 19. Investor sentiment towards fiscal 2025 guidance remains mixed, with the majority expecting management to reaffirm its outlook next week, although some anticipate a potential reduction.
Consensus expectations are currently tracking "below or at the low end" of the company’s guidance, Geiger remarked. Darden had reiterated its full-year guidance in September, projecting same-store sales growth between 1% and 2%, total sales ranging from $11.8 billion to $11.9 billion, and earnings per share estimated between $9.40 and $9.60. UBS foresees positive trends for Olive Garden and an enhancement of market share in the second half of the fiscal year, bolstered by "sustained momentum" at Longhorn.
The anticipated improvement at Olive Garden will likely benefit from easier year-over-year comparisons, the introduction of new menu items, and marketing strategies emphasizing price sensitivity, according to Geiger. In addition, Darden's partnership with Uber for on-demand Olive Garden delivery is set to roll out by late 2024, expected to yield a "notable incremental sales lift" heading into fiscal 2026.
The companies announced plans for national expansion, aimed to be completed by May 2025. As Olive Garden prepares for the partnership, same-store sales may experience a 1% to 2% uplift as integrations with the Uber service ramp up, and Darden may consider extending the delivery service across its other brands as well..