Darden Restaurants' (DRI) fiscal first-quarter same-store sales and earnings per share will likely beat Wall Street's estimates, though the top line for its Olive Garden brand will likely miss consensus, Morgan Stanley said in a note Monday.
The investment firm raised its first-quarter same-store sales estimate to 3.6% from 3.3%, ahead of the analyst consensus of 3.1%, and revised its EPS projection to $2.06 from $2.02, above the Street's $2.05.
"(Fiscal first quarter) sales look better than Street in our view, mostly driven by LongHorn [Steakhouse], while Olive Garden could be weaker, and this is an investor focus area, though like last time, we don't think it derails overall results," Morgan Stanley said. "We're not expecting an outsized beat or outsized stock move at this point, maybe more of a modest positive move."
For fiscal 2027, Morgan Stanley kept its EPS outlook unchanged at $11.25 and now expects same-store sales of 3.2% compared to 3.3% previously and the consensus of 3%. The firm's view is within Darden's guidance of EPS between $11.10 and $11.35 and SSS from 2.5% to 3.5%.
"Guidance for the year should stand and our (fiscal year 2027) numbers are similar at this point," Morgan Stanley said. Same-store sales growth for the rest of the year will be "more modest" compared to the first quarter as the performance normalizes for LongHorn Steakhouse, where pricing is more front-end loaded and comparisons get tougher in the second half, according to the note.
Darden is scheduled to report is first quarter earnings on Sept. 24.
The firm raised its LongHorn first-quarter estimate for same-store sales growth to 7.5% from 6.5%, beating the 5.9% Street consensus, while lowering its Olive Garden projection to 1.5% from 2.0%, below the Street view of 1.8%.
Morgan Stanley noted that casual dining stocks have pulled back from recent highs due to renewed consumer concerns, despite steady August demand and easing comparisons.
"We are only modestly above Street on EPS given commodity pressure in (first quarter), so this is probably not a quarter where we think costs do heavy lifting," the firm said. "We are mindful of ongoing fuel cost pressure and some pockets of persistent inflation."
Darden's earnings durability and compressed valuation multiple will likely strengthen if LongHorn stays strong, Olive Garden remains stable, and margins hold through a challenging cost quarter, according to the note.
Morgan Stanley raised the price target on Darden's stock to $255 from $236 and reiterated overweight rating.
Last week, UBS Securities said Darden will likely reiterate its full-year outlook after reporting strong fiscal first-quarter results, despite softening trends at its Olive Garden brand.
Shares of the company were up 1.9% in Monday trading and have gained 16% this year.
Price: $214.25, Change: $+4.36, Percent Change: +2.08%
