Darden Restaurants beat quarterly sales and profit expectations thanks to a big assist from its Olive Garden and LongHorn Steakhouse brands. Consolidated same-store sales grew by 5%, despite a 2.8% decline in the company’s fine dining segment.
LongHorn Steakhouse same-store sales were up 8.1%. Olive Garden, which represents about 45% of the company’s revenue, increased its same-store sales by 6.1%. The chain is bringing back its Never-Ending Pasta Bowl next week to maintain that momentum during a typically slower period, as families head back to school. Olive Garden brought the promotion back around the same time last year after a two-year hiatus, which exceeded expectations and kept traffic higher than segment averages in the quarter. It will remain the same price as last year’s promotion, starting at $13.99 and an additional $4.99 for certain protein toppings, such as meatballs, Italian sausage, and crispy chicken.
CEO Rick Cardenas said the promotion’s return is a strategic approach to offering value without deep discounting, while also maintaining brand equity.
“We’re providing great value but in a way that drives profitable sales growth,” he said.
Darden executives noted the company’s $715 million acquisition of Ruth’s Chris earlier this year has yielded more synergies than they originally expected, and they intend to reinvest that money into the guest and team member experiences. CFO Raj Vennam said the initial expectation was $20 million in annualized run-rate synergies, and now the company expects closer to $35 million. Those synergies are generally coming from the supply chain and G&A expenses.
Cardenas said the integration planning process is complete and now the company is moving to integrate all of the systems. He anticipates it will take about nine months.
“There will be a lot of disruption, so we’re going to pace it at the right level,” he said.
Another key takeaway from the call is the state of the consumer, particularly as fine dining traffic declines. Vennam said on a one-year basis, there was “a lot of negative mix on alcohol.” Darden has also seen some evidence of check management at Olive Garden and LongHorn, specifically on alcohol and entrees. That said, the mix remains above pre-Covid numbers, which is a positive sign. Executives attributed the current quarterly mix as a lap over last year’s “exuberance” from consumers coming out of Covid.
“It’s nothing alarming. We’re not at a point where we’re missing the check by quite a bit,” Vennam said. “For fine dining, we believe it’s truly wrapping around exuberance from last year. It was a huge positive mix last year and that’s going away. Now we’re starting to see things normalize. That’s why we look at it versus pre-Covid and there’s no big drop off through that lens in fine dining.”
Though there has been some softness in the $100,000-plus cohort, Cardenas added that overall the company sees the consumer as resilient.
“There is a tension between what people want to pay for and what they can afford and they will continue to see value, which is not always about low price. They’re making tradeoffs and food-away-from-home is one of the most difficult things they can give up. We’re confident we’re well positioned thanks to the breadth of our portfolio,” he said.
The company generated $2.7 billion in revenues during the quarter, marking an 11.6% increase year-over-year, driven by pricing, new restaurant openings and the addition of 77 company-owned Ruth’s Chris restaurants.
Also, Darden’s board of directors unanimously elected Cynthia (Cindie) T. Jamison as chair, succeeding Gene Lee, who retired. Jamison joined the board nine years ago.
Contact Alicia Kelso at [email protected]
