Darden’s fiscal first quarter 2023 earnings were impacted by high commodity costs, though its executives predict inflation will lessen in the remainder of the year.
Orlando, Florida, U.S.A.-based Darden, which operates LongHorn Steakhouse, Olive Garden, The Capital Grille, and several other restaurant chains, reported its net earnings per share dropped to USD 1.56 (EUR 1.56) in Q1 2023 (ending 28 August, 2022), compared to USD 1.76 (EUR 1.76) per share for the same quarter in 2022. Its sales rose 6.1 percent to USD 2.4 billion (EUR 2.4 billion).
Total inflation was around 9.5 percent and total pricing was around 6.5 percent, Darden Senior Vice President, Chief Financial Officer, and Treasurer Rajesh Vennam said on an earnings call.
The company’s food and beverage expenses were 280 basis points higher in the quarter, driven by commodities inflation of 15 percent, Vennam said.
Darden’s labor costs were also 50 basis points above last year, driven by hourly wage inflation of over 9 percent. Total labor inflation across the industry in the U.S. was 7.5 percent. Darden’s restaurant expenses were 10 basis points above last year, driven by higher repairs and maintenance expenses, “due to supply chain challenges and utilities inflation of 16 percent,” Vennam said.
Darden's marketing spend was also up 20 basis points, as the company upped its testing of both digital and television marketing.
Despite the increased costs, the company “expects total inflation and our gap between pricing and inflation to have peaked in the first quarter,” according to Vennam.
"We also expect inflation to moderate throughout the remainder of the year, while our pricing gap should narrow in both the second and third quarter and then reverts in the fourth quarter," Vennam said. “And, while we have commodities inflation risk in the back half of the year, we have pricing plans ready to put into action, which will help preserve our targeted gap to inflation for the year if we see inflation higher than our expectations."
Darden President and CEO Rick Cardenas acknowledged “significant commodities cost pressure” during the quarter, but said the restaurant company’s supply chain team “did an excellent job of working with the suppliers to minimize or offset cost increases to the extent possible.”
“Inflation remains a headwind for consumers as well, particularly those in households making less than USD 50,000 [EUR 52,000] a year,” Cardenas added. "Olive Garden and Cheddar's have more direct exposure to these guests. Looking at guest behavior across our entire portfolio, we are seeing softness with these consumers, while conversely, we are seeing strength with guests in higher-income households.”
In fact, sales at its fine dining restaurants soared 7.6 percent in the quarter, while Longhorn Steakhouse sales rose 4.2 percent, Olive Garden sales were up 2.3 percent, and “other business” sales rose 7.6 percent.
All the company’s brands “remain committed to our strategy to price below their competitors,” Cardenas said.
Photo courtesy of Casimiro PT/Shutterstock
