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Upscale Dining

Darden Restaurants boosts payout by 28%; PetSmart launches new stock buyback.
THE WORLD’S LARGEST CASUAL-DINING company, Darden Restaurants, served up a meaty 28% dividend boost last Wednesday. It was the 42-year-old Orlando, Fla., company’s fifth consecutive annual enrichment, and it brings the quarterly payout on common stock to 32 cents a share from 25 cents. Darden, whose eateries comprise Red Lobster, Olive Garden, LongHorn Steakhouse, Capital Grille, Bahama Breeze and Seasons 52, has been disbursing dividends since 1995, when the company went public.

The new payout will be distributed on Aug. 2 to investors of record July 9. The ex-dividend date is July 7.

Along with the sweetened dividend, Darden announced results for its fiscal fourth quarter (ended May 31) that weren’t as appetizing as Wall Street had expected, even though it has been saying all along that sales trends could fluctuate because of tight-fisted consumers and the uneven economic recovery. For the quarter, Darden’s profit slipped to 80 cents a share from 87 cents in fiscal 2009 (which had one extra week), while revenue declined 5.7%, to $1.86 billion. Analysts surveyed by Thomson Reuters had predicted earnings, on average, of 88 cents on volume of $1.89 billion.

But Darden is upbeat about fiscal 2011. It expects earnings per share for the full year to grow 14% to 17%, and sales to gain 5.5% to 6.5%. Capstone Investments appears to echo Darden’s optimism, calling the company “the best of the breed in a tough economic environment.” The firm initiated coverage of the stock earlier this month with a Buy rating and a $51 price target. After setting a 52-week high of 49.01 on the Big Board April 23, Darden’s stock was recently quoted at nine points below that level, for a 3.23% yield. In fiscal 2010, the company bought back two million of its shares.

A YEAR AGO, the nation’s largest specialty retailer of products and services for pets, PetSmart, more than tripled its dividend and launched a $350 million stock buyback. Last Monday brought a 25% payout hike and a new $400 million repurchase plan.

The enhanced quarterly will be 12.5 cents a share, up from a dime. Holders of record July 30 will receive the dividend Aug. 13; the ex-date is July 28. Disbursements were initiated in June 2003, and last year’s increase was the first since 2004. The buyback authorization, which expires in January 2012, will replace the $103 million remaining from the earlier program.

CEO Bob Moran said Phoenix-based PetSmart “continues to generate cash well above the amount needed for optimal reinvestment in our business.” He added that “the return of excess cash to our stockholders…reaffirms the stability and predictability of our cash flow as well as demonstrating the continued strength of our business.”

PetSmart’s results have held up well during the recession. In its fiscal first quarter (ended April 30), earnings surged 20% on a 5% sales advance, topping analysts’ estimates. The company also raised its full-year profit guidance.

Traded on Nasdaq, PetSmart, which yields 1.62% with the new dividend, is priced a few notches under its 52-week high of 34.93, set May 12.