Darden Restaurants' Business Confidence Remains Intact Despite Summer Slump

Last Thursday, Darden Restaurants Inc DRI issued weaker than expected fiscal first quarter earnings as fine dining restaurants and Olive Garden struggled with lower sales. 

Fiscal first quarter highlights show summer sales fell short of expectations.

For the quarter ended on August 25th, Darden reported revenue grew 1% YoY to $2.76 billion, coming short of LSEG’s consensus estimate of $2.8 billion, but same store sales declined 1.1%. Like its restaurant peers, Darden’s traffic struggled during summer, presumably due to increased travel. Moreover, Olive Garden reported that same-store sales contracted by 2.9% while fine dining suffered an even sharper drop of 6%. The only chain to report sales growth was LongHorn Steakhouse, with an increase of 3.7%. Net income rose from last year’s comparable quarter to $207.2 million, or $1.74 per share. Excluding costs brought on by July’s acquisition of Chuy’s, adjusted earnings amounted to $1.75 per share.

Outlook

Darden expects the Chuy’s deal to close during the current, fiscal second, quarter. This is also when the results of its second acquisition in two years, Ruth’s Chris Steak House will appear in its same-store sales figures.

Despite a challenging quarter, Darden reaffirmed its fiscal 2025-year guidance. For the full fiscal year, Darden guided for net sales in the range between $11.8 billion and $11.9 billion, with earnings from continuous operations ranging from $9.40 to $9.60 per share. 

Despite a gloomy quarter, CEO Rick Cardenas has not lost confidence.

While acknowledging that results were below expectations, Cardenas is confident that the initiatives that the company took to boost its revenue and address their guests’ needs, including its first partnership with Uber Technologies Inc UBER, will bring the desired improvements shortly, without damaging the long-term picture. With the two-year exclusive deal with Uber, Darden ended its resistance to third-party delivery, something it wasn’t willing to give up even during the pandemic times during which Uber thrived. In an effort to lure back customers, Olive Garden will be bringing back its ‘Never Ending Pasta Bowl’ promotion a month earlier than usual, along with a three-week extension compared to last year. Like its industry peers, Darden is adjusting to a challenging macroenvironment with value promotions, menu revamping and strategic partnerships. Here's to hoping that Uber will help Darden to boost its sales and that the summer slump was just a blip. 

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