Darden Restaurants category share gains to accelerate - Wedbush

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By Sam Boughedda

Darden Restaurants (NYSE:DRI) was upgraded to Outperform from Neutral, with its price target raised to $160 from $134 by Wedbush analysts on Wednesday.

The analysts told investors ahead of Darden's earnings release on December 16 that the firm expects Darden category share gains to accelerate in an increasingly uncertain consumer environment, rendering visibility into the company's ability to "achieve or exceed current consensus FY23 expectations relatively high."

"Our FQ2 OG checks point to SSS growth in line-to-above 3.4% consensus. Our LH checks also point to SSS growth in line-to-above 5.9% consensus and in the 5.2-7.2% range after adjustments. Positive callouts at both concepts included improving guest counts, sustained levels of off-premise sales, a seasonal sales lift as we head into the holidays, and improved staff retention levels. Our FQ2 SSS growth estimates are 4.0% at OG and 6.0% at LH," they explained.

"We note QTD commentary indicated that consolidated SSS growth was trending above annual 4-6% guidance," the analyst added. Expect accelerated share gains in an increasingly value-conscious consumer environment. Since the start of the pandemic, management deliberately gave up 10%+ of OG's pre-COVID dining room traffic via a ~2/3 reduction in promotional and marketing activity/spend. AWS at OG in FQ1 were 101% of pre-COVID levels, driven almost entirely by average check growth."