Chicago, IL – March 26, 2025– Today, Zacks Investment Ideas feature highlights Darden Restaurants DRI.
Olive Garden Parent Hits All-Time High as Market Rall Gathers Steam
The first legitimate rally attempt amid this latest market correction is clearly underway.
US markets resumed their momentum from late last week, rallying sharply on headlines that the next set of President Trump's tariffs will be slimmer than expected. President Trump said on Monday afternoon that he may provide "a lot of countries breaks" in regards to the proposed reciprocal tariffs, which are due to be implemented on April 2nd.
This past Friday's "triple witching" event – wherein a set of options contracts expired that were tied to stocks, indexes, and ETFs to the tune of about $4.5 trillion – brought enhanced volume that favored the bulls. The move pushed the major US indexes into the green, helping the Nasdaq and S&P 500 snap a 4-week losing streak.
It's understandable that any meaningful rally would see the more oversold pockets of the market (like tech and consumer discretionary) bounce the most. And sure enough, the past few trading sessions have seen these two areas (along with communication services) round out the top sectors in terms of performance.
Given lower asset prices this year along with lingering inflation and tariff concerns, consumers have been less confident in this environment. Back in February, the Conference Board's Consumer Confidence Index fell 7 points to 98.3, marking the steepest 1-month decline since August 2021. The reading was also the lowest level in 8 months; we'll get the March figures on consumer confidence later this morning.
But as we've seen, consumers don't always match their feelings with their actions. Restaurant spending is one area that has held up well, which could translate to significant upside ahead for certain discretionary stocks.
Olive Garden Parent Soars to Record High Following Earnings Results
Casual dining chain Darden Restaurants reported quarterly earnings results late last week. The company earned $2.80 per share during its fiscal third quarter, slightly below the $2.81/share Zacks Consensus Estimate. Sales of $3.16 billion improved 6.2% year-over-year but also fell short of analysts' expectations.
The Orlando, Florida-based company's portfolio comprises casual restaurants such as Olive Garden and LongHorn Steakhouse, as well as fine dining establishments like The Capital Grille, Eddie V's Prime Seafood, and Seasons 52. A Zacks Rank #3 (Hold) stock, Darden Restaurants operates more than 2,100 locations in the United States and Canada.
At its flagship restaurant in the Olive Garden, revenues increased 1.5% year-over-year to $1.33 billion. Darden CEO Rick Cardenas pointed out the fact that changes in consumer sentiment aren't being reflected in consumer spending.
"Even if people say they're feeling less optimistic, we haven't seen a huge correlation between that and dining out," Cardenas stated. On the earnings call, management also highlighted that several of the company's brands set records during the holiday season and Valentine's Day. Darden offered upbeat guidance, forecasting same-store sales to grow 3%.
Darden, which already has an existing partnership with Uber for Olive Garden, announced a new pilot program to include 10 Cheddar's Scratch Kitchen locations. A positive rollout would allow the company to quickly pivot to full delivery services.
Market participants appear to have looked past the latest mixed earnings results, instead choosing to focus on the company's prediction that consumers will continue to pull out their wallets at its restaurants. DRI stock broke out to an all-time high on Monday.
For the current quarter, analysts expect Darden Restaurants to post a profit of $2.93 per share, which would reflect growth of 10.6% versus the same quarter last year. Revenues are projected to increase 9.7% to $3.24 billion.
Stocks hitting new highs during market pullbacks tend to lead on the way back up. Be sure to keep an eye on discretionary stocks like DRI as the market's recovery attempt gathers steam.
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