Shares of Darden Restaurants, Inc. DRI have surged to a new high, capturing the attention of investors eager to capitalize on its robust performance in the casual dining sector. On Thursday, the stock reached a new 52-week high of $188.94 before closing slightly lower at $188.66.
As a stalwart in the industry, Darden's diversified portfolio, operational excellence and strategic initiatives have propelled it to new heights. Over the past three months, DRI has outperformed its peers, including Chipotle Mexican Grill, Inc. CMG, McDonald's Corporation MCD and El Pollo Loco Holdings, Inc. LOCO. The stock has gained 14.5% against the Zacks Retail - Restaurants industry’s decline of 0.7%.
However, with the stock trading at an elevated level, investors are faced with a crucial decision: should they invest now to ride the momentum or wait for a potential dip to enter the market? Let’s delve into Darden's recent performance, strategic moves and future outlook to help you make an informed investment decision.
DRI’s Three-Month Price Performance
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Factors Fueling DRI’s Momentum
Darden Restaurants reported a stellar second quarter of fiscal 2025, meeting all expectations and reinforcing its position as a leader in the casual dining space. The company achieved total sales of $2.9 billion, marking a 6% year-over-year increase. This growth was driven by a 2.4% rise in same-restaurant sales, the acquisition of 103 Chuy's restaurants in October, and the addition of 39 net new restaurants.
The company’s flagship brand — Olive Garden — continues to excel with its "Never Ending Pasta Bowl" promotion. This initiative not only drove a positive sales gap but also achieved the highest refill rates and increased protein add-ons compared to the previous year. Additionally, Olive Garden launched an Uber Direct pilot in approximately 100 restaurants, aiming to enhance delivery capabilities without immediate promotion. The successful integration of this technology is set to roll out system-wide by the end of the third quarter.
During the fiscal second quarter, LongHorn surpassed expectations with a 10.4% year-over-year increase in sales, driven by 7.5% growth in same-restaurant sales. The brand's commitment to quality was evident through initiatives like the first Steak Cutter Summit, which aligned suppliers with LongHorn's stringent quality standards. This focus on excellence resulted in an all-time high in correctly grilled steaks, reinforcing LongHorn's reputation for premium quality.
Yard House leveraged its distinctive culinary offerings, featuring trend-forward items like Bratwurst sliders during Oktoberfest, which boosted sales momentum. Cheddar’s capitalized on Darden's purchasing power to introduce limited-time offers such as the Texas T-bone and Bone-in Ribeye, providing great value and driving guest retention. Cheddar’s also achieved its best-ever retention levels and was ranked first among casual dining brands for affordability by Tecnomics.
What Lies Next for Darden?
The acquisition of Chuy's restaurants is a significant milestone for Darden, expanding its footprint and enhancing operational synergies. The integration process, led by experienced teams, focuses on preserving Chuy's unique culture and maintaining guest experiences.
Additionally, Darden is rolling out a next-generation proprietary point-of-sale system across its brands, designed to streamline operations, reduce training time, and provide near real-time analytics. This technological upgrade is expected to further strengthen Darden's competitive advantage through enhanced data insights and operational efficiency.
Upgraded Fiscal 2025 Guidance Lifts Confidence in DRI
The updated fiscal 2025 guidance from Darden reflects higher expectations compared to the initial forecast, driven primarily by the integration of Chuy’s acquisition. The company now expects total sales to reach approximately $12.1 billion (including $300 million from Chuy’s), up from the initial range of $11.8–$11.9 billion. The updated guidance anticipates opening 50–55 net new restaurants, a slight increase from the prior range of 45–50.
Capital spending projections have also increased, with the revised guidance estimating expenditures of approximately $650 million, compared to the initial range of $550–$600 million. This increase likely reflects additional investments related to the Chuy’s acquisition and other strategic initiatives. Meanwhile, the updated inflation expectation is lower at approximately 2.5%, down from the earlier 3% projection, indicating a more favorable cost environment than initially anticipated.
Darden has maintained its adjusted diluted earnings per share (EPS) outlook of $9.40–$9.60 for fiscal 2025, indicating confidence in its ability to manage costs and maintain profitability. The updated guidance underscores a more aggressive growth strategy while accommodating inflationary pressures and higher investments, positioning Darden for continued long-term success.
The Zacks Consensus Estimate for DRI’s fiscal 2025 and 2026 EPS has moved up 0.4% and 1.3%, respectively, in the past 60 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
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DRI’s Technical and Valuation Insights
Technical indicators suggest continued strong performance for DRI. As of Thursday, Darden stock was trading above its 50-day moving average of $168.23 and its 200-day moving average of $155.64. The technical strength underscores positive market sentiment and confidence in DRI’s financial health and prospects.
DRI Stock Trades Above 50 and 200-Day Moving Average
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With a forward 12-month price-to-earnings ratio of 18.65X, well below the industry average of 25.62X, the stock presents a potentially attractive valuation for investors.
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Our Thoughts
Darden leverages operational excellence, a diverse brand portfolio, and strategic initiatives to achieve impressive growth. The company’s strong fiscal second-quarter performance, highlighted by robust same-restaurant sales, innovative promotions and the successful integration of Chuy’s, underscores its ability to adapt and thrive in a competitive market. Additionally, Darden’s upgraded fiscal 2025 guidance reflects confidence in its growth trajectory, supported by increased revenue expectations and prudent capital investments.
From a technical perspective, DRI's stock trading above its 50-day and 200-day moving averages signals ongoing market confidence. The forward P/E ratio below the industry average suggests a reasonable valuation despite the stock reaching a 52-week high. For investors, Darden presents a compelling case for retaining the stock, given its strong fundamentals, attractive valuation and promising outlook. While waiting for a dip could enhance entry points, long-term investors are well-positioned to benefit from Darden’s continued momentum and strategic direction.
The company currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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