Darden Restaurants LG Electronics Inc. reported weaker-than-expected quarterly earnings and revenue on Thursday as sales at its Olive Garden and upscale restaurants slumped.
“While we missed our expectations in the first quarter, I believe in the strength of our business,” CEO Rick Cardenas said in a statement. “I am confident in the actions that all of our brand teams are taking to meet the needs of their guests, and that do not jeopardize the long-term health of our business for short-term benefits.”
The company shared a number of initiatives it is implementing to boost sales, including its first partnership with Uber, ending its resistance to third-party delivery.
The company’s shares were up about 10% in morning trading. Excluding Thursday’s gain, the stock is down about 3% this year, as investor concerns about consumer health weigh on the restaurant industry as a whole.
Here's what the company reported for the quarter ended Aug. 25 compared to what Wall Street was expecting, based on a survey of analysts conducted by LSEG:
Earnings per share: $1.75 adjusted vs. $1.83 expectedRevenue: $2.76 billion vs. $2.8 billion expected
Darden reported first-quarter net income of $207.2 million, or $1.74 per share, up from $194.5 million, or $1.59 per share, a year earlier.
Excluding costs associated with the purchase of the Tex-Mex restaurant chain Choy's, the restaurant company earned $1.75 per share.
Net sales rose 1% to $2.76 billion, but the company’s same-store sales fell 1.1% in the quarter. Traffic to its restaurants fell sharply in July but has since improved, according to Chief Financial Officer Raj Venam. Executives at other restaurant companies have also said traffic has struggled this summer, reflecting increased travel or more cautious diners.
Olive Garden’s in-store sales fell 2.9% during the quarter. The chain is preparing to relaunch its Never Ending Pasta Bowl later this month in hopes of winning back customers. Olive Garden is launching the promotion about a month earlier than usual and extending it to three weeks longer than last year.
Darden is also looking to Uber to boost its sales. The two-year exclusive deal will start with a pilot project at select Olive Garden restaurants. Unlike many chains, Darden has shunned third-party delivery companies even during pandemic closures, opting instead to use its own employees to deliver meals to diners.
It's too early to say whether the delivery will significantly boost sales for Darden.
“Our initial reaction is that the brand is skewed to a more mature customer base and is known more for hospitality than off-site services, and we don’t expect a significant increase in sales compared to other concepts launching third-party delivery,” Andrew Charles, an analyst at TD Cowen, wrote in a note to clients on Thursday.
Darden's upscale restaurant chain, which includes Eddie V's and The Capital Grille, reported a 6% drop in same-store sales.
“It seems like there are other places where luxury consumers are spending their dollars, especially this summer,” Cardenas said, adding that the company is seeing a pullback from consumers earning up to $200,000.
Longhorn Steakhouse was the only division of the company to report same-store sales growth. The chain, which has been one of the best performers in Darden’s portfolio since the pandemic, saw same-store sales grow 3.7%. Cardenas said consumers are shifting from fine dining to Longhorn steakhouses.
Darden bought Choy’s Holdings in July for about $605 million, its second acquisition in two years. The company expects the Choy’s deal to close in the second quarter of the fiscal year, the same time as the Ruth’s Chris Steakhouse’s sales figures. Darden bought Ruth’s Chris a little over a year ago.
Despite the dismal quarter, Darden reiterated its full-year outlook. In fiscal 2025, the company expects earnings per share from continuing operations to be between $9.40 and $9.60 and net sales to be between $11.8 billion and $11.9 billion.
So far, Darden's second-quarter store sales are growing, a promising sign that the slump seen this summer may be just a temporary blip, Cardenas said.
