What is in this article?:
- Darden: Specialty group outperforms flagship brands in 3Q
- New units drive revenue
Darden reported a same-store sales increase of 2.3 percent at its Specialty Restaurant Group.
Darden Restaurant Group Inc. reported on Friday positive third-quarter sales at brands in its specialty restaurant group amid declines at its three largest brands.
In an otherwise bleak quarter for the casual-dining restaurant segment, Darden reported a same-store sales increase of 2.3 percent at its Specialty Restaurant Group, which is composed of Seasons 52, Eddie V’s, Yard House, The Capital Grille and Bahama Breeze. Group revenue for the quarter ending Feb. 24 increased 61.1 percent to $287 million.
“The environment is very positive for the group,” said Eugene Lee, president of Darden’s Specialty Restaurant Group. “We’ve seen strong business travel. We’re seeing luxury growth in other aspects in retail, in hotel. We had a very strong holiday season with private dining.”
Darden's chief executive officer, Clarence Otis, Jr., noted during a call with analysts that the company plans to expand the Specialty Restaurant Group.
Meanwhile, same-store sales fell 4.6 percent at Olive Garden, Red Lobster, and LongHorn Steakhouse, the company's three largest brands, just over the 4.5-percent drop that the company estimated in a revised forecast released in late February.
"Certainly some of the external factors we're all aware of including the payroll tax increase, the spike in gasoline prices and more severe winter weather this year contributed to that [decline]," said Andrew H. Madsen, president and chief operating officer at Darden. “Our priority now is regaining same-restaurant traffic momentum.”
A new era for dining out
Madsen noted that in the current market, Darden would have to appeal to different types of consumers: both those who are financially strained, and those who aren’t.
“For many guests, affordability is a particularly important need,” he said. “These guests want to visit casual-dining restaurants in particular more often than they do today, but they feel they cannot afford it. There are also economically secure guests who are looking for distinctive higher-quality dishes and are willing to pay a little more for them.”
Otis said that as a result, the company would focus on tempering average check growth across the larger brands while expanding its Specialty Restaurant Group. "We think that's what it takes to support same-restaurant traffic growth,” he noted. “We are, for sure, in a new era for dining out,” he said.
The key, he said, is to evolve guest experiences in a way that keeps Darden’s brands interesting and relevant.
One example of how Darden is attempting to meet guest needs is its new fast-casual lunch test at Red Lobster. Running at two Orlando-area locations, the lunch service offers customers quicker dining at a lower price point.
“The lunch daypart, in particular, is one where we know that for a large number of guests, affordability, speed and convenience are very important,” Madsen said.
Stephen Anderson, senior analyst, restaurants at Miller Tabak + Co., LLC, wrote in a report that the most important take away from today’s earnings call was that although same-stores sales declined in February, March numbers are looking up.
“We think many of the macroeconomic risks affecting the sector may be receding at an accelerated pace,” he wrote. “We anticipate above-peer traffic growth [for Darden] in the next few quarters.”