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Darden (DRI) Earnings Preview

by | Sep 19, 2021

Darden (DRI) reporting earnings on Thursday 9/23 before the open with the Street looking for $1.65 on $2.23B in sales. Next quarter is guided to $1.44/$2.19B while the FY is $7.43/$9.4B, a 30% increase Y/Y. Shares have closed higher in five of the last six with an average closing move of 5.8% and a max move of 24.18%. The current implied move is 4%. The $19.5B company trades 18X earnings, 2.7X sales, and 26.5X FCF. DRI has benefited from the reopening and return to on-premise dining while a strong consumer and pent-up demand support growth across their brands. The company is also investing in their own restaurants including new menus and revamped portion sizes, and better tech in their To Go business to help the customer experience overall. The company has a lot of questions around costs going into the quarter with both labor and food inflation soaring. Analysts have an average target for shares of $155 with a Street High $175. RBC out on 9/15 expecting an in-line quarter for the company. They think any changes to DRI’s cost outlook could drive the stock lower. Cowen on 9/15 previewing the quarter and noting that they’re seeing “a pretty tight band of sales performance over the Summer months and into September which leads us to believe that the delta variant is not causing an acute amount of pain to industry sales. amid the spike in COVID-19 cases” They also think labor issues are easing in recent weeks. Evercore downgrading shares on 8/9 noting that they expect cost pressures will dampen the fiscal year outlook towards the middle of the guidance range. Hedge fund ownership fell 22.5% last quarter, Victory Capital a notable seller. A lot of bearish September options flow expired last week and notable remaining flows are positioned for upside. The October $155/$190 call spread bought 1000X in April remains in OI with the $130 puts sold. The October $140/$200 call spread is also in OI. On the chart, shares are setting up for a breakout above a multi-month range and flagging currently above VWAP from the August lows. A move higher has a measured move to $160.

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