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Here's Why Darden Restaurants, Inc. Gained 16% in 2016

In a difficult year for restaurants in general, Darden Restaurants Inc. (NYSE: DRI) managed to outperform the industry. The company also closed the calendar year strongly, putting up impressive results in its fiscal Q2, which covered the period that ended Nov. 27, 2016.

Image source: YCharts.com.

What happened

After a mostly flat year in which its share price stayed within a limited range, Darden saw its stock price spike after the company reported its Q2 2017 results. Those numbers include an increase in sales from continuing operations of 2.1%. In addition, the company reported that diluted net earnings per share from continuing operations increased 178.3% to $0.64 and rose 18.5% from last year's adjusted diluted net earnings per share.

That was enough to send the company's share price much higher from where it opened the year. Darden began 2016 at $62.88 and closed the year at $72.72, a 15.6% increase, according to data from S&P Global Market Intelligence.

Olive Garden has increased its comparable sales. Image source: Darden.

So what

Darden's numbers were strong across multiple brands in its second quarter. Overall same-store sales were up 1.7%, with Olive Garden being up 2.6%, Eddie V's climbing 2.7%, Capital Grille rising 1.2%, Bahama Breeze jumping 2.6%, Yard House gaining 0.7%, Longhorn Steakhouse inching up 0.1%, and only Seasons 52 dropping, by 0.3%.

"We had another strong quarter, with same-restaurant sales growth significantly outperforming the casual-dining industry benchmarks, especially at Olive Garden," said CEO Gene Lee in the Q2 earnings release. "We remain laser-focused on our operating philosophy rooted in food, service, and atmosphere, and creating memorable experiences for our guests."

Now what 

Even though conditions remain difficult and Americans are eating out less, Darden believes it will finish its fiscal 2017 strong. In its Q2 earnings release, the company reaffirmed its outlook for diluted net earnings per share of $3.87 to $3.97 and same-restaurant sales gains of approximately 1% to 2%.

Those aren't outsize projections. If the year finishes that way when it comes to same-store sales, it would mean some brands would cool off from their Q2 numbers. But if Darden can pull off any increases in this market, it's doing very well.

As Lee said, it's truly a question of execution. The company's various brands have shown they can deliver as long as they continue to focus on customer experience. 

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Daniel Kline has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.