U.S. restaurant giant Darden’s sales soared in its fiscal first quarter, driven by its acquisition of Ruth’s Chris Steakhouse restaurants and other factors.
The Orlando, Florida, U.S.A.-based operator of Eddie V’s Prime Seafood, The Capital Grille, Olive Garden, LongHorn Steakhouse, and other restaurant chains also realized savings from lower food and beverage costs.
Darden’s total sales in its Q1 2024 soared 11.6 percent to USD 2.7 billion (EUR 2.5 billion), thanks to a blended same-restaurant sales increase of 5.0 percent, the addition of 77 company-owned Ruth's Chris Steak House restaurants, and 46 other net new restaurants.
While sales at its fine dining restaurants dropped 2.8 percent in the quarter, LongHorn’s sales jumped 8 percent and Olive Garden rose 6 percent. Its same-restaurant sales for the quarter outpaced the industry by 410 basis points and same-restaurant guest counts exceeded the industry by 430 basis points, Darden Chief Financial Officer Raj Vennam said on the company’s earnings investor call.
Darden acquired Winter Park, Florida, U.S.A.-based Ruth’s Chris Hospitality Group, which operates 154 upscale restaurants globally, in a USD 715 million (EUR 675 million) deal in early May. Darden now expects to realize more synergies with Ruth’s Chris than originally anticipated, according to Darden President and CEO Rick Cardenas said during the call, and plans to reinvest some of them in the guest and team member experience.
While the company previously anticipated USD 20 million (EUR 19 million) in annualized run rate synergies, it now expects around USD 35 million (EUR 33 million) of gross run rate synergies and other cost savings, according to Vennam, “We anticipate investing approximately USD 10 million [EUR 9.4 million] into the business, resulting in annualized net run rate synergies of approximately USD 25 million [EUR 24 million],” Vennam said.
The company’s total price was around 6 percent during the quarter – 300 basis points above total inflation of roughly 3 percent, according to Vennam – while food and beverage expenses were 130 basis points lower, driven by pricing leverage.
“While beef inflation continues to track in line with our expectations, most other categories are seeing slight favorability. As a result, total commodities inflation of approximately 1 percent was better than our expectations,” Vennam said.
Customers are trading down and spending less at Olive Garden and LongHorn but it’s “not alarming,” according to Vennam. For example, LongHorn has some menu items have a better margin for Darden. The pricing difference might be causing some guests to trade down but it’s not hurting Darden’s overall margins, Vennam said.
“We're actually okay with that some negative entrée mix we're seeing,” he said. “It's too early…to kind of read too much into this negative mix that we're seeing on the check at the casual brands.”
However, the sales shortfall in Darden’s fine-dining segment is a “function of exuberance last year,” he said.
“We were seeing a huge positive mix last year and that's going away…so now we're starting to things normalize,” Vennam said. “That’s why when we wanted to look at it versus pre-Covid and when we look at it through that lens, we did not see any big drop off at the fine dining.”
Overall, consumer spending continues to be resilient, Cardenas said.
“We are seeing a little softness versus last year with household incomes above USD 125,000 [EUR 118,000] and that primarily affects our fine-dining brands, but it does affect all of our brands,” he said.
Cardenas said Americans will continue to seek value, but not always the lowest price.
“They're making trade-offs and food away from home is one of the most difficult things they can give up,” he said.
To that end, the company is focused on marketing each of its restaurants’ unique strengths. For example, Capital Grille held a “Generous Poor” event, a specially curated wine experience allowing guests to sample award-winning wines paired with items on the Capital Grille menu, Cardenas said.
“It will not be at a deep discount. We are focused on providing great value to our guests, but doing so in a way that drives profitable sales growth,” Cardenas said.
Photo courtesy of M4Productions/Shutterstock
