Darden Restaurants: There Is Just No Bottom in Sight

Source: Thinkstock

Darden Restaurants Inc. (NYSE:DRI) is really a company that needs no introduction. It owns and operates some of the best-known full-service restaurants in the United States and Canada. It operates restaurants under the Red Lobster, Olive Garden, LongHorn Steakhouse, Capital Grille, Bahama Breeze, Seasons 52, Eddie V’s Prime Seafood, and Wildfish Seafood Grille brand names.

The stock has been under some serious pressure of late, as its last few quarters have been really weak. We recently learned the company would be selling Red Lobster, which further has pressured shares. In this article, I will highlight the company’s most recent earnings miss and elaborate on why shares are a sell in my opinion.

The company continues to lose steam. Why? Pitiful performance. Fourth-quarter diluted net earnings per share were 65 cents, which compares to $1.01 in last year’s fourth quarter. That is a decline of 36 percent. Of course, the company had its excuses, claiming net earnings per share for the fourth quarter of this year were adversely affected by approximately 19 cents due to legal, financial, advisory, and other costs related to implementation of the strategic action plan Darden announced in December 2013, as well as charges related to various asset impairments.

Shockingly, sales were up slightly year over year. Fourth-quarter total sales from continuing and discontinued operations were $2.32 billion, which compares to $2.3 billion in the fourth quarter last year. As a result of the pending sale of Red Lobster, operating results for Red Lobster are included in discontinued operations for all periods presented. However, the company did not allocate any general and administrative operating support expenses to net earnings from discontinued operations.