Darden Restaurants Inc. boosted its earnings outlook for the year Tuesday, and said its previously announced real estate transactions were proceeding on schedule and largely as planned.
The company also reported first-quarter growth in same-store sales at all of its chains, which it said helped drive margin improvements and contributed to positive earnings per share from continuing operations.
“We are pleased with the progress we made during the first quarter as we significantly outperformed the industry in terms of same-restaurant sales and traffic,” Gene Lee, CEO of Darden, said in a conference call with analysts discussing results for the first quarter ended Aug. 30.
Based on its performance in the first quarter, the company raised its adjusted earnings outlook for the year to a range of $3.15 to $3.30 per share, from previous projections of $3.05 to $3.20. Darden said it expected same-store sales in the U.S. to rise 2 percent to 2.5 percent, unchanged from previous projections.
The results do not include the potential impact of any real estate transactions and related capital structure activities, the company said.
As far as its real estate transactions go, Darden said it had made some small adjustments to its plans to spin off hundreds of locations into a separate real estate investment trust, or REIT and to conduct a sale-leaseback for some other properties. It now plans to spin off 424 restaurant properties to the REIT and to conduct a sales-leaseback of 64 locations.
The company said it does not anticipate any problems from a recent notice by the Internal Revenue Service concerning REITs.
“We are really confident that that our proposed transaction will satisfy all requirements of applicable law, and we plan on having this deal done by the end of the calendar year,” Lee told analysts during the call.
The company plans to leverage the spin-off and sale-leasebacks to retire $1 billion of debt and conduct other capital restructuring activities.
During the quarter, Darden said its Olive Garden chain continued to exhibit growth in sales and profitability. Same-store sales rose 2.7 percent over the previous year’s results, and guest counts grew 0.3 percent.
“Olive Garden continues to build on the positive business momentum built in fiscal 2015, with its fourth consecutive quarter of same-restaurant sales growth,” Lee said. “During the quarter, guest counts turned positive and outperformed the industry by more than 200 basis points.”
He attributed the sales growth in part to the strong performance of new, customizable menu offerings that rely less on deep discounting, which Lee said is not resonating as well with consumers as it was in recent years.
The new offerings included a “Tour of Italy” promotion and a create-your-own lunch program. The latter allowed diners to choose between a pasta bowl, a flatbread or what Lee described as Olive Garden’s “extremely well received” new breadstick sandwiches.
The breadstick sandwiches were supported by a multimedia ad campaign that garnered 820 million impressions across traditional and social media, Lee said.
The chain is also seeing success with its Olive Garden ToGo offering, he said, with 18-percent growth in the first quarter and a two-year growth rate of more than 30 percent. Lee said he believes the ToGo offering is attracting new consumers to the brand.
While most of the orders are made via phone, the company is continuing to try to drive more diners through online and mobile, Lee said. Online currently accounts for 20 percent of orders, and checks are 20 percent higher when orders are placed digitally.
Olive Garden also expects to complete its rollout of tabletop tablets by the end of the second quarter. Lee noted that 80 percent of guests are using devices at locations where they have been installed.
The company is also working to develop a loyalty program, which Lee said “has the potential to go across all of our brands.”
Darden saw positive same-store sales of 3.4 percent overall in the first quarter. In addition to the gains at Olive Garden, Darden also reported same-store sales gains of 4.4 percent at Longhorn Steakhouse, 7.2 percent at The Capital Grille, 5.1 percent at Eddie V’s, 3.4 percent at Yard House, 3.9 percent at Seasons 52, and 1.8 percent at Bahama Breeze.
Overall, Darden reported net income in the first quarter of $86.4 million, compared with net income of $503.2 million the previous year, which included gains from the Red Lobster sale.