Shares of Darden Restaurants were up more than 4.5 percent in premarket trading on Tuesday after the company posted better than expected fiscal-third-quarter earnings and disclosed a deal to buy Cheddar’s Scratch Kitchen.
The company reported earnings of $1.32 per share on revenues of $1.88 billion. Analysts had expected EPS of $1.27 on revenues of $1.86 billion, according to Thomson Reuters.
“We continued to gain market share as we outperformed industry same-restaurant sales by a considerable margin again this quarter,” said Gene Lee, Darden’s CEO, in a Monday statement.
Darden saw same-store sales, a key metric that includes only stores open at least a year, rise 0.9 percent across the board during the quarter, with Eddie V’s reporting a 4.7 percent jump.
“Most impressive to us is the Olive Garden same-store-sales results, which topped our expectations with only slightly negative traffic and sizable outperformance to the industry, likely driven by continued growth in ToGo sales,” said Peter Saleh, a BTIG analyst, in a Monday research note.
Olive Garden saw same-store sales grow 1.4 percent in the third quarter, well above Street Account estimates of 0.6 percent. Same-store sales at Longhorn, Capital Grille and Bahama Breeze restaurants also beat Street Account estimates.
Street Account did not provide guidance for Eddie V’s, Yard House and Seasons 52.
The company increased its same-store sales outlook for 2017 to 1.5 percent from a range of 1 percent to 2 percent. It also said it expects diluted net earnings per share to range from $3.95 to $4.00.
IDarden also disclosed plans to buy Cheddar’s Scratch Kitchen for $780 million in an all-cash transaction. Cheddar’s shareholders include private equity firms L Catterton and Oak Investment Partners.
“Cheddar’s is an undisputed casual dining value leader with broad appeal and strong average restaurant volumes,” Darden’s CEO said in a statement. “This addition will also enable Darden to further strengthen two of our most important competitive advantages: our significant scale and our extensive data and insights.”
Darden said it expects the transaction of Cheddar’s, which has 165 locations in 28 states, to be accretive to its adjusted earnings for fiscal 2018 by about 12 cents per share.
“Although we have limited to no financial data on the company, we are familiar with it from a brand perspective and believe it is a good addition for Darden,” said Nicole Miller Regan, a senior analyst at PiperJaffray, in a research note Tuesday.