What happened
Shares of Darden Restaurants, Inc. (DRI 2.89%) were sliding on Tuesday after the Olive Garden parent posted disappointing comparable sales in its first-quarter earnings report.
Notably, the company's revenue and earnings were actually better than expectations, but analysts often give more weight to comparable sales in the restaurant industry as, by stripping out the impact of new restaurants, the metric gives the best reflection of a company's underlying growth.
As of 11:16 a.m. EDT, the stock was down 6%.
Image source: Darden Restaurants.
So what
Darden, which also owns a number of other chains including LongHorn Steakhouse and the Capital Grille, said adjusted earnings per share increased from $0.88 to $0.99, topping estimates by a penny, while revenue grew 12.9% to $1.94 billion, also edging out expectations of $1.93 billion.
However, companywide comparable sales increased 1.7%, not including Cheddar's Scratch Kitchen, which the company acquired this spring. That figure missed Wall Street expectations at 2.1%.
CEO Gene Lee said: "Our focus on simplifying operations and providing an excellent value for our core consumer continues to yield strong sales growth. ... These actions have enabled Darden to outperform the industry."
Now what
Indeed, Darden's quarter was solid, especially considering the broader "restaurant recession" that has pushed down stocks like The Cheesecake Factory and the parent companies of Applebee's and Chili's.
That trend and Darden's recent success may be part of the reason for today's sell-off as investors should be generally pleased with today's report.
Management also held its full-year guidance, calling for revenue growth of 11.5% to 13% and comparable sales growth of 1% to 2%. It also sees EPS of $4.38 to $4.50, about a 10% increase from a year ago, which makes the stock a reasonable value after today's drop. Given that forecast, long-term investors shouldn't be bothered by today's sell-off.
