03:07 PM EST, 12/09/2024 (MT Newswires) -- Darden Restaurants' ( DRI ) fiscal second-quarter earnings report due next week will likely reflect a challenging macro environment, though trends at Olive Garden ( DRI ) will likely improve in the second half, UBS Securities said in a Monday note.

The brokerage is modeling Darden's second-quarter same store sales growth at 1.1%, which is below the 1.7% consensus. Its projection reflects a 0.8% rise at Olive Garden ( DRI ) and a 4% improvement at Longhorn Steakhouse.

Investors have indicated a fine dining miss and downside to earnings per share, according to the research report. The brokerage lowered its adjusted earnings per share target to $2 from $2.02, moving further below the $2.03 consensus.

"We expect a challenged macro and casual dining competition likely pressured results across brands," UBS analyst Dennis Geiger said. Darden is scheduled to report results for the second quarter on Dec. 19.

Investors are mixed on the fiscal 2025 guidance, with most expecting management's outlook to be reiterated next week but some anticipating a reduction, according to UBS. Consensus expectations are tracking "below or at the low end" of the company's guidance, Geiger said. Darden reiterated its full-year guidance in September that includes same store sales growth in the 1% to 2% range, total sales between $11.8 billion and $11.9 billion and EPS between $9.40 and $9.60.

UBS expects Olive Garden ( DRI ) trends and market share to improve in the second half of the fiscal year and be complemented by "sustained momentum" at Longhorn. Olive Garden's ( DRI ) improvement would reflect easier year-over-year comparisons, new menu items, and marketing that focuses on price sensitivity, according to Geiger.

Darden's partnership for on-demand Olive Garden ( DRI ) delivery with Uber ( UBER ) is expected to roll out late in 2024, which will provide "notable incremental sales lift" heading into fiscal 2026, he said. The companies in September predicted national expansion would complete by May 2025.

Olive Garden's ( DRI ) same store sales could get a 1% to 2% uplift from the Uber ( UBER ) first-party partnership as sales ramp up, while Darden could eventually expand the service across Darden's other brands, according to UBS.

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