Release Date: March 20, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Darden Restaurants Inc (DRI, Financial) achieved profitable sales growth despite challenging weather conditions, demonstrating the strength of their business model.
- Several brands, including Olive Garden, set sales records during key holidays, indicating strong guest loyalty and effective marketing strategies.
- The rollout of Uber Direct for Olive Garden delivery was successful, with delivery orders growing week-to-week and maintaining higher check averages than curbside pickup.
- LongHorn Steakhouse achieved an all-time high in their 'steaks grilled quickly' score, reflecting strong operational execution and quality standards.
- New smaller prototypes for Yard House and Cheddar's performed at or above expectations, reducing construction costs and accelerating new restaurant openings.
Negative Points
- The third quarter was negatively impacted by unfavorable weather and a Thanksgiving holiday shift, affecting same-restaurant sales by approximately 190 basis points.
- Fine Dining segment experienced a decrease in same-restaurant sales, with a negative impact from weather and holiday shifts.
- Despite improvements, the consumer segment with incomes below $50,000 showed a pullback in spending, indicating potential vulnerability in lower-income demographics.
- The integration of Chuy's into Darden's systems is ongoing, with significant milestones like supply chain transitions and point-of-sale updates still pending.
- Inflation is expected to rise to about 3% in the fourth quarter, with pricing still below this level, potentially impacting operating margins.
Q & A Highlights
Q: Can you discuss whether the improvement in your brands is due to internal factors or industry trends, and how consumer behavior has played a role?
A: Ricardo Cardenas, President and CEO, noted that the improvement is largely due to the performance of their brands, particularly Olive Garden and LongHorn. He mentioned that consumer spending among those earning between $50,000 and $100,000 is still growing, although not as much as before, with the only negative growth seen in consumers earning below $50,000.
Q: How is the Uber partnership affecting your advertising spend, and what are the expectations for its impact?
A: Ricardo Cardenas explained that while Uber is contributing to the advertising spend, Darden is funding the majority. The impact on advertising spend is not expected to be significant, and the campaign will last a few weeks. Rajesh Vennam, CFO, added that marketing spend will grow by 10 to 20 basis points year-over-year.
Q: Can you provide insights into the Olive Garden delivery rollout and its impact on sales?
A: Ricardo Cardenas shared that the delivery rollout is still in its early stages but has been successful. The pilot restaurants saw delivery sales grow to about 2.5% of total sales, with other restaurants following a similar pattern. The delivery channel has a higher check average than curbside pickup, and the initial marketing efforts have been promising.
Q: What are your thoughts on the current consumer sentiment and its impact on dining out trends?
A: Ricardo Cardenas mentioned that despite lower consumer confidence, dining out remains a priority for consumers as a way to treat themselves. He noted that while there is some pullback among consumers earning below $50,000, overall spending has not been significantly impacted, and Darden continues to focus on providing value and a great experience.
Q: How are the new smaller prototypes for Yard House and Cheddar's performing, and what impact do they have on unit growth?
A: Ricardo Cardenas stated that the new prototypes are performing at or above expectations, with sales and traffic comparable to larger prototypes. These smaller formats help reduce construction costs and enable more site opportunities, potentially accelerating unit growth for these brands.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
