An order of bread from the Olive Garden of Darden Restaurants Inc.
Restaurants in Darden Thursday reported mixed quarterly results but stood above its outlook for fiscal 2023, predicting inflation will cool in the coming quarters.
The parent company of Olive Garden and LongHorn Steakhouse said its first fiscal quarter net sales rose 6.1% to $2.45 billion, falling short of Wall Street expectations. Darden tried to attract customers by pricing it lower than its competitors and limiting the amount of incremental costs it passed on to diners. During the quarter, its menu prices rose 6.5%, resulting in a total inflation of 9.5%.
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However, CEO Rick Cardenas said on the company’s conference call that inflation is weighing on consumers, especially those in households with annual incomes below $50,000.
“We’re seeing a bit of a change in behavior from that consumer, but not a big one,” he said.
Inflation is also weighing on the company’s operating profit. During the quarter, Darden’s food, beverage and labor costs increased year-over-year.
Shares of the company fell more than 4% in morning trading.
Here’s what Darden reported for the August 28 quarter versus what Wall Street expected, based on a survey of analysts by Refinitiv:
- Earnings per share: $1.56, meets estimates
- Revenue: $2.45 billion vs. $2.47 billion expected
Demand for the company’s two largest chains fell short of expectations during the period. Olive Garden’s similar-store sales rose 2.3%, down from StreetAccount’s estimate of 5.4%. Cardenas said the chain, which accounted for nearly half of Darden’s revenue for the quarter, is more exposed to low-income consumers.
Demand for LongHorn Steakhouse also fell short of Wall Street expectations. The chain reported a 4.2% increase in same-store sales, missing the 5.1% estimate.
Overall, sales at the company’s similar stores rose 4.2 percent, boosted by activity in fine-dining restaurants. The segment, which includes The Capital Grille, reported same-store sales growth of 7.6%. Darden said it has seen seasonal changes for demand to return to business. Before Covid pandemicThe summer months usually mean a lull in traffic.
Net income for the period was $193 million, or $1.56 per share, down from $230.9 million, or $1.75 per share, a year earlier.
For fiscal year 2023, Darden expects earnings per share from continuing operations of $7.40 to $8. The company is assuming that inflation will increase by 6% during the fiscal year. Chief Financial Officer Raj Vennam told investors that the company believes inflation peaked in the first quarter and that the gap between higher costs and menu prices will narrow over the next two quarters. If inflation exceeds expectations, Darden plans to raise prices further.
Darden also expects sales of $10.2 billion to $10.4 billion. It forecasts same-store sales growth of 4% to 6% and 55 to 60 new restaurants opening in fiscal year 2023.