Olive Garden parent Darden's earnings hit by 'significant' drop in traffic in July, but stock gains on Uber delivery tie-up
By Ciara Linnane
Stock jumps 7% as company backs full-year guidance and unveils plans for delivery of Olive Garden menu items via Uber
Darden Restaurants Inc.'s stock rose 11% premarket Thursday, after the parent to Olive Garden, LongHorn Steakhouse and other restaurant chains' earnings fell short of estimates, but it backed guidance for the full year and announced a tie-up with Uber for delivery.
Chief Financial Officer Raj Vennam said a "significant" slowing of traffic in July was behind the miss. Many restaurant operators and retailers have experienced slumps in demand this year against a background of high inflation that has consumers curbing their spending.
"Following the softness in July, our sales trend has continued to improve," he said in prepared remarks. "Considering this recovery as well as the planned initiatives to support the remainder of the fiscal year, we are reiterating our guidance for fiscal 2025."
Placer.ai, which tracks retail and foot traffic, said last week it had registered a 6.9% rebound in traffic at Olive Garden in August, after a 4.4% decline in July.
For more, read: Olive Garden parent saw a 5.1% jump in visits in August after a slump in July
Separately, the company announced a partnership with ride-sharing and food-delivery app Uber Technologies Inc. (UBER) to start delivery of Olive Garden menu items through Uber Direct. The service will be available via Olive Garden's app and website, and not via Uber's marketplace.
The company will start with a pilot program at a limited number of Olive Garden restaurants in late 2024. Assuming the pilot is successful, it will move to national expansion by May of 2025.
On a call with analysts, executives outlined that the first-party agreement with Uber will allow Olive Garden to retain data on its own guests.
"Overall, we view this as an incremental long term sales driver," Chief Executive Rick Cardenas told analysts, according to a FactSet transcript.
Orlando, Fla.-based Darden (DRI) had net income of $207.2 million, or $1.74 a share, for the quarter through Aug. 25, up from $194.5 million, or $1.59 a share, in the year-earlier period.
Excluding one-time costs relating to the acquisition of TexMex chain Chuy's, adjusted per-share earnings came to $1.75, below the $1.84 FactSet consensus.
Sales rose to $2.757 billion from $2.731 billion a year ago, below the $2.803 billion FactSet consensus. Same-restaurant sales were down 1.1%, while FactSet was expecting a 0.3% decline.
"We operate in a very dynamic, competitive industry and we have proven we can successfully navigate challenging environments due to our strategy," Cardenas said. "While we fell short of our expectations for the first quarter, I firmly believe in the strength of our business."
Same-restaurant sales fell 2.9% at Olive Garden, rose 3.7% at LongHorn and were down 6% at the company's fine dining segment.
The company backed its guidance for fiscal 2025 which includes adjusted EPS of $9.40 to $9.60.
On a call with analysts, Cardenas said Olive Garden responded to the July traffic slump by moving a never-ending pasta bowl promotion forward and running it for a full 12 weeks, three weeks longer than planned.
He also highlighted favorite menu items that are returning to Olive Garden in the second half. These include steak gorgonzola Alfredo and stuffed chicken marsala, both of which were removed during the COVID-19 pandemic.
At LongHorn, a new lemon garlic chicken dish has been well received by clients, along with a new dragon fruit margarita, made with a specially blended Patron tequila, he said.
The stock is up 4% in the year to date, while the S&P 500 has gained 19.7%.
-Ciara Linnane
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09-19-24 1125ET
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