Darden CEO dampens acquisition speculationDarden CEO dampens acquisition speculation

Darden Restaurants Inc. executives Thursday dampened analyst speculation that they might be expanding the company’s portfolio of eight casual-dining concepts.

Gene Lee, CEO of the Orlando, Fla.-based parent to Olive Garden, LongHorn Steakhouse and Cheddar’s Scratch Kitchen, said the 1,772-unit company could meet its goals with its existing stable of brands.

“Our current portfolio can deliver the long-term framework for the foreseeable future,” Lee told analysts on a third-quarter conference call. “We're really focused on regaining momentum in CSK.”

Cheddar’s saw same-store sales decline by 2.7% for the most recent quarter.

He said the company would “continue to evaluate the situation of our current portfolio and look for opportunities to add over time.”

However, Lee noted, “It's important to reinforce that we do not need an acquisition in there — for the foreseeable future — to be able achieve our long-term framework.”

Lee said the company considers new restaurant-unit growth in the range of 2% to 3% to be the right level for the company’s human resources and real estate infrastructure.

Human resources were one aspect of the Cheddar’s Scratch Kitchen division, which Darden acquired in 2017, that the company continues to work on, Lee said.

“We need to stabilize the human resource metrics of this business that should lead to improved sales and profit results, and then from there we'll be able to continue to grow this business,” Lee said, but he cautioned that growth would not be in the double digits.

“We don't like to grow brands greater than 10% unit growth,” he said. “We think that puts tremendous stress on the human resources. So, we'll evaluate Cheddar's growth each and every year. … We think Cheddar's is still a huge opportunity in the marketplace and we are more excited today than we were when we first bought this chain.”

Ricardo Cardenas, Darden’s chief financial officer, said the company had not yet turned on online ordering for the Cheddar’s brand.

“That’s still a potential for us,” Cardenas said, adding that the company would switch on those sales-building initiatives when it feels the time is right.

Off-premise sales have been growing for sister concept Olive Garden. In the third quarter, off-premise sales for that Italian brand grew 13% and represented 15.9% of total sales for the period, Lee said.

On Valentine’s Day, which is the second busiest day of the year for Olive Garden, Lee said “off-premise sales grew 20% and more guests took advantage of the convenience of online ordering, with a 52% increase on online orders.”

For the third quarter ended Feb. 24, Darden reported same-store sales by brand with unit counts at the end of the period:

Olive Garden, 860 units: up 4.3%
LongHorn Steakhouse, 512 units: up 3.8%
Cheddar’s Scratch Kitchen 159 units: down 2.7%
Yard House, 78 units: down 2.1%
The Capital Grille, 58 units: up 4.3% 
Seasons 52, 43 units: down 1.3%
Bahama Breeze, 42 units: down 3.7%
Eddie V’s, 20 units: up 3.7%

Bill Fahy, vice president at Moody’s, said in a statement that "Darden’s continued positive same-restaurant sales growth at its two core brands — Olive Garden and LongHorn Steakhouse — with positive guest counts, check and mix indicates that the company’s initiatives continue to resonate with consumers, which is particularly noteworthy given the intense competitive environment of today’s U.S. restaurant sector.”

For the third quarter, Darden’s net income was up 2.7% to $223.6 million, or $1.79 a share, from $217.8 million, or $1.73 a share, in the same period a year ago. Sales were up 5.5% to $2.2 billion from $2.1 billion in the prior-year quarter.

Contact Ron Ruggless at [email protected]

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