Will Darden Restaurants (DRI) Stock Be Impacted After Judge Dismisses Customer's Lawsuit?

NEW YORK (TheStreet) -- Darden Restaurants Inc. (DRI) won their motion in court on Thursday when a Manhattan U.S District Judge dismissed a lawsuit brought against the parent company of the Red Lobster and Olive Garden restaurants, alleging the company overcharged for tips.

The lawsuit suggested Darden's restaurants were illegally adding an 18% tip to customers' bills, CNBC reported.

The plaintiff claimed it was "deceptive" for Darden to impose a mandatory tip, when such an action is usually voluntary.

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The judge dismissed the case saying the 18% tip is clearly stated on the company's menus, which gives diners the opportunity to leave the restaurant if they don't want to have it added to their checks.

Shares of Darden Restaurants are lower by -0.96% to $44.33 at the start of trading on Friday.

Separately, TheStreet Ratings team rates DARDEN RESTAURANTS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate DARDEN RESTAURANTS INC (DRI) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its reasonable valuation levels, considering its current price compared to earnings, book value and other measures. At the same time, however, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DRI, with its decline in revenue, underperformed when compared the industry average of 5.8%. Since the same quarter one year prior, revenues fell by 28.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • DARDEN RESTAURANTS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, DARDEN RESTAURANTS INC reported lower earnings of $1.38 versus $3.14 in the prior year. This year, the market expects an improvement in earnings ($2.23 versus $1.38).
  • The debt-to-equity ratio of 1.28 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.11, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. In comparison to the other companies in the Hotels, Restaurants & Leisure industry and the overall market, DARDEN RESTAURANTS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • You can view the full analysis from the report here: DRI Ratings Report
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