Despite nervousness in the economy, Darden Restaurants Inc.’s casual-dining concepts continued to perform well in the third quarter ended Feb. 26, and CEO Rick Cardenas said customers continue to see dining out as “an affordable luxury.”
The Orlando, Fla.-based Darden, which owns Olive Garden, Longhorn Steakhouse and other casual-dining brands, reported third-quarter earnings on Thursday, and same-store sales for all Darden brands were up 11.7% in the quarter, with increases of 12.3% at Olive Garden, 10.8% at Longhorn Steakhouse, 11.7% in fine dining and 11.7% in other business.
Cardenas, Darden’s CEO and president, in an earnings call with analysts, said, “There's been a shift in spending from durable goods to services. Restaurant businesses are benefiting from that.”
Cardenas added that “data from our proprietary brand health tracker suggest that most consumers are not pulling back from restaurant visits, and they do not appear to be trading down from full service to limited service, based on the data that we have now.”
In September, Darden executives had noted some pressure on lower-income consumers.
“There is a tension between what people want and what they can afford,” he continued. “Consumers continue to seek value, which is not about low prices consumers are making spending tradeoffs, and food away from home is one of the most difficult expenses to give up because going out to a restaurant is still an affordable luxury for them.”
During the winter holiday season, “Olive Garden and LongHorn Steakhouse set new all-time weekly sales records only to break them during Valentine's week,” Cardenas said.
Off-premises sales remain strong, he added. They accounted for 26% of total sales at Olive Garden, 14% at Longhorn and 12% at Cheddar’s Scratch Kitchen in the third quarter. Cardenas said Darden was converting some younger customers from to-go orders to dine in, with the consumer demographic a little younger than before the COVID pandemic was declared in March 2020.
He added that the Darden brands hadn’t “seen a material change in mix” from lower-end consumers because of concerns about the economy.
“If it manifests itself,” Cardenas added, “it generally starts with managing check. Generally, consumers will manage their check first and then they'll manage their visits later. And, so far, we really haven't seen a whole lot of check management.”
Off-premises sales were continuing to benefit from technology, he added.
“We continue to leverage technology to make it easier to order, pickup and pay without having to pass the added expense of third-party delivery on to our guests,” Cardenas said.
Digital transactions made up more than 62% of all off-premises sales, he added, and about 10% of Darden’s total sales.
For the third quarter ended Feb. 26, Darden posted $286.6 million in net earnings, or $2.34 a share, up from $247 million, or $1.93 a share, in the same period last year. Sales in the quarter were $2.986 billion, up from $2.449 billion in the prior-year period.
In the third quarter, Darden opened seven new restaurants, Cardenas added, and the company is on track to open 25 net new restaurants in the fourth quarter.
Raj Vennam, Darden’s chief financial officer, said pricing was about 6.3% in the third quarter.
Commodities inflation of was about 9% in the period, Vennam said, “which was higher than we anticipated going into the quarter and significantly outpaced pricing of 6.3%. Chicken, dairy and grains continue to be categories experiencing the highest levels of inflation but each improved vs. prior quarter as we expected. However, beef inflation increased from the second quarter levels and drove the majority of our higher than anticipated commodities.”
Staffing in the third quarter continued to ease, executives said.
“We're very well-staffed,” Cardenas said. “We have more managers per restaurant than we've ever had in our history. So we feel really good about where we are.” Vennam, in guidance, said the company planned to open about 50 to 55 new restaurants in this fiscal year.
As of Feb. 26, Darden had 1,890 restaurants, including 893 Olive Gardens, 554 LongHorn Steakhouses, 179 Cheddar's Scratch Kitchens, 86 Yard Houses, 61 The Capital Grilles, 43 Seasons 52s, 42 Bahama Breezes, 29 Eddie V's and 3 The Capital Burger units.
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