Darden Restaurants (DRI) is expected to post solid same-store sales growth for the fiscal fourth quarter at key brands despite macroeconomic pressures, including upside at LongHorn Steakhouse and modest downside at Olive Garden relative to consensus expectations, UBS Securities said Sunday in a report.
The firm projects same-store sales growth of 2.9% at Olive Garden and 7.2% at LongHorn Steakhouse. Investor sentiment is "skewed negative" for Olive Garden due to an anticipated sales miss, tougher comparisons ahead and potential beef cost pressures, the report said.
UBS forecasts blended fourth-quarter same-store sales growth of 4%, compared with Wall Street's 4.1% estimate. Investors generally expect Olive Garden's quarterly sales growth to come in the high-2% range, with LongHorn expected between 7% and 8%.
Earnings are expected to remain broadly in line with Wall Street estimates, UBS said. Results are due Thursday.
LongHorn Steakhouse is expected to maintain strong momentum, supported by consistent execution and menu innovation, UBS said. Olive Garden's performance is expected to be supported by value-focused promotions, affordability-driven menu initiatives, continued benefits from the Uber Direct partnership and incremental marketing investments.
UBS maintained its buy rating on Darden stock with a $230 price target. Investors are likely to focus on management's outlook for beef costs, and insights into consumer restaurant demand in fiscal 2027, the report said.
Darden entered the quarter with about 85% of its beef costs covered and expects operating margins to benefit from sales leverage, pricing in the mid-3% range, lower labor costs due to reduced turnover and favorable restaurant expenses, the report said.
UBS forecasts fourth-quarter operating margins of 14.3%, in line with consensus estimates and up 70 basis points from a year earlier.
The focus is on 2027 total inflation expectations "with beef cost projections likely still elevated, while the rest of the food basket and labor costs should remain relatively stable," the report said.
Investor expectations for Darden's 2027 guidance are broadly in line with the company's long-term growth algorithm, UBS said.
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