Darden's Solid Earnings Make It Attractive

| About: Darden Restaurants, (DRI)
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Beat revenue and EPS expectations.

Showing improvement comparable same-restaurant sales, driven by Olive Garden.

Dividend and share repurchases add to investors' returns.

Darden Restaurants (NYSE:DRI), the Orlando, FL-based owner and operator of ~1,500 full service restaurants, reported very strong second quarter results Tuesday that beat expectations on the top and bottom line. Total sales from continuing operations rose 4.9% year-over-year to $1.56 billion for the quarter, beating analysts' estimates by $10M. GAAP diluted EPS from continuing operations for the quarter was $0.24, compared to $0.05 last year. However, on an adjusted basis, diluted EPS from continuing operations were grew 133% year-over-year to $0.28, beating consensus estimates by $0.01. Furthermore, the company tightened its current guidance for fiscal 2015 adjusted diluted EPS to $2.25-$2.30 (vs. previous lower-end guidance of $2.22), which would be a 32-35% increase.

Comparable same-restaurant sales for the quarter were up for each of their restaurants with the exception of the Bahama Breeze chain which was down -0.06%, with the greatest growth occurring at The Capital Grille (5.0%). Even Olive Garden, the company's largest chain with 836 restaurants in the U.S. and Canada, posted same-restaurant sales of 0.5%, after analysts were expecting a quarterly decline.

In addition to reporting earnings, Darden's Board of Directors also declared a regular quarterly cash dividend of $0.55 per share on the Company's outstanding common stock, making the forward yield ~3.93%. And the company took receipt of about 8.6M shares as first installment of the $500M accelerated share repurchase program during the Q2 quarter. Since quarter's end, company has taken receipt of another 1.3M shares. So management is pretty aggressively returning capital to shareholders through a combination of cash dividends and share buybacks.

Overall, the company delivered solid performance this quarter. And this progress should continue, following the shake up by activist-investor Starboard Value. In October, shareholders voted to replace its entire board with a slate of 12 directors nominated by Starboard Value. Additionally, Darden spun off it's Red Lobster unit earlier this year to specifically focus more on its Olive Garden business, which is starting to pay off.

While the stock is expensive, the positive operating momentum of the company is undeniable. The company seems to be moving in the right direction with the recent improvement in same-store sales trends and cost-cutting efforts, and is taking the hit on restructuring and impairment charges in order to better position the company going forward. Furthermore, the company is returning capital to shareholders while pursuing these activities, including a very attractive dividend yield of almost 4%. If the company continues to improve operations and potentially benefits from the trend towards casual dining, this may be a stock worth owning.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.