Shares of Darden Restaurants (NYSE:DRI) have trounced the market in the past year as investors bet on the business enjoying a huge growth spike while the U.S. economy fully reopens. The restaurant giant has even outperformed industry peers, including McDonald's and Chipotle Mexican Grill so far in 2021.
That rally will be put to the test when Darden announces fiscal fourth-quarter results in just a few days while updating shareholders on its outlook for the new year ahead. Let's look at the main metrics to watch in that report, set for Thursday, June 24.
It's highly likely that Darden's pandemic slump will come to an emphatic end this week. Management back in late March projected a return to sales growth, with revenue likely rising nearly 70% to $2.1 billion. For context, sales in the prior quarter were down 26%.
The difference this time around is that nearly all of Darden's restaurants were fully operational in the fiscal fourth quarter. The company is also going up against a prior-year period that included some of the worst impacts of COVID-19 restrictions. Those trends help explain why Wall Street is so bullish on the short-term growth story. Most investors who follow the stock are looking for sales to outpace management's forecast and land at nearly $2.2 billion.
The big metric to watch is sales as compared to 2019, which will describe the health of the business without noise from the temporary store closures. Revenue on that basis was up 6% at its Olive Garden and 23% at its LongHorn Steakhouse chains, the company said in March. Investors on Thursday are hoping to see similarly positive results for the weeks that followed.
Cash and spending
We'll also find out how well Darden handled rising costs for food, labor, and most other expenses. It likely had to boost menu prices in many cases while seeking savings in areas like staffing levels. Still, the profit picture should be bright, with earnings likely landing at $1.76 per share compared to last year's loss of $1.24 per share. That Wall Street prediction is again just above the official outlook that management issued in March calling for earnings between $1.60 and $1.70 per share.
Strong cash generation might have supported aggressive stock-repurchase spending over the last few months. CEO Gene Lee and his team also might be in a position to allocate more resources toward store expansion. Heading into this report, their plans called for opening roughly 33 new restaurants in fiscal 2021.
The fiscal 2022 outlook might call for an accelerated expansion rate, especially if customer traffic rebounded in May and June while to-go order trends remain strong. Darden faces some major risks, including the securing of enough employees to keep its restaurants fully staffed. Spiking costs might force it to get creative in its pricing and promotions, too.
But the most likely scenario has Darden issuing a bullish 2022 forecast that implies a complete rebound from COVID challenges. It's possible that growth will snap right back down to normal from there. But for now, Darden's focus in one of the hardest-hit consumer discretionary niches means it will enjoy a big demand boost that lasts through this economic boom cycle.