Rich People Aren't Spending As Much At Steakhouses: Recession Warning Sign?

Darden Restaurants Inc DRI reported earnings before Thursday's market open, slightly beating EPS and revenue estimates. The company saw weaker growth in the fine dining sector compared to the more casual restaurants it owns.

What Is Darden? Darden is a major restaurant conglomerate that owns and operates a number of recognizable restaurant chains like Olive Garden, LongHorn Steakhouse, Cheddar’s and more. The company also owns and operates higher-end restaurants like Capital Grille, Seasons 52 and the recently acquired Ruth Chris Steakhouse. 

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The company reported 6.1% growth in sales for its Olive Garden restaurants in the second quarter on a year-over-year basis. LongHorn Steakhouse performed even better, gaining more than 8% in sales year-over-year. 

Darden’s fine-dining sector saw growth of less than 3%, indicating that high-earning spenders could be cutting back. 

Restaurants In Recession? Surprisingly, restaurants tend to hold up decently well in recessions. According to Technomic, an information and consulting firm that services the restaurant industry, the food service sector declined in only two out of the six recessions the U.S. economy has seen in the last 40 years.

One of those recessions was the COVID-19 pandemic, which created an obvious headwind for restaurants. One reason restaurants are able to hold up through tough times is because recruiting becomes easier: when unemployment increases, more people are willing to work at restaurants. 

Price Action: Darden’s stock was trading 1.08% lower at $147.84 at the time of publication Thursday, according to Benzinga Pro.

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