While consumer sentiment may be shaken, Olive Garden parent Darden Restaurants Inc. executives said the casual-dining company remains well situated for any choppy economic seas ahead.
After reporting a strong fourth quarter on Thursday, new Darden president and CEO Rick Cardenas told analysts that higher-end consumers’ spending has shown less impact than that of lower-end consumers.
“The consumer sentiment right now is at the lowest it's been in 60 years, according to the University of Michigan,” said Cardenas, who took the helm of the company after Gene Lee’s retirement at the end of May, “but one of the benefits of our portfolio is we have a wide range of consumers.
“Our data indicates a higher-end consumer hasn't seen the same impact as consumers at the lower end of the spectrum,” he said. “And consumers at the lower end, especially at Cheddar's [Scratch Kitchen] have shown signs of check management. They do make up a smaller percentage of our current guest base, so the impact that inflation is having on that lower-end consumers is showing a little bit.”
While Darden executives faced numerous questions about the potential for a recession on the horizon, Cardenas said Darden’s brands, which include LongHorn Steakhouse and The Capital Grille, “won't overreact. We're going to continue to focus on profitable sales growth and manage the business for the long term.”
If consumer traffic were to slow, he added, “we would also expect the rate of inflation to decline as well.”
Cardenas added that brands like Olive Garden have the size to use mass media effectively.
“Olive Garden’s scale provides them the opportunity to use media to get our message out to many guests,” he said. “That's what the one of the benefits of scale. We believe we can drive traffic by highlighting the value we provide every day through an abundance of our never-ending first course.”
“We do believe we have the tools in our toolbox to keep traffic at a better level in the industry,” Cardenas said, “but we won't do things that will hurt us in the long term for short-term benefit.”
While Darden saw commodity inflation of about 6% for the year, said Raj Vennam, the company’s chief financial officer, which was about double the expectation of 3%. However, he noted the company worked to keep price increases below the inflation rate.
Darden’s concepts have hesitated to get into the delivery segment in a big way, which Cardenas said might pay off during an economic downturn.
“If the consumer starts feeling more strapped, will they be willing to pay the kind of rates they have to get food delivered?” he asked. “Or will they just decide to go pick it up?”
Cardenas added that he believes Darden brands have “the best to-go, pickup experience in casual dining,” citing the company’s investments in technology to make it easier to order, pick up and pay. Digital orders were about 60% of Darden’s total to-go sales in the fourth quarter, he added, and that means digital equated to 10% to 12% of the restaurants’ actual sales.
For the fourth quarter ended May 29, Darden’s net income was $281.7 million, or $2.24 a share, compared to $368.5 million, or $2.78 a share, in the same period last year. Fourth-quarter sales increased 14.2% to $2.603 billion from $2.279 billion, driven by a blended same-restaurant sales increase of 11.7%, and sales from 33 net new restaurants
Same-store sales were up 6.5% at Olive Garden, up 10.6% at LongHorn Steakhouse, up 34.5% in the fine-dining division and up 18.5% in its other business.
As of May 29, Darden had 1,867 restaurants, including 884 Olive Gardens, 547 LongHorn Steakhouses, 172 Cheddar's Scratch Kitchens, 85 Yard Houses, 62 Capital Grilles, 45 Seasons 52 units, 42 Bahama Breezes, 28 Eddie V's locations and three Capital Burger units.
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