Financing

Cheddar’s is next on Darden’s fix-it list

Darden

Extensive repair work over the last two years brought increases in comparable sales for seven of Darden Restaurants’ casual-dining brands, leaving 156-unit Cheddar’s Scratch Kitchen as the only laggard in the fourth quarter ended May 27, the company said.

Cheddar’s, the newest addition to Darden’s extensive full-service portfolio, posted a same-store sales decline of 4.7% for the period. Darden CEO Gene Lee explained that sales were hurt by a suspension of the brand’s promotional activities, a result, in turn, of the operation needing time to adjust to Darden’s operational and support systems. The company completed the $780 million purchase of Cheddar’s at the end of April 2017. 

“During the fourth quarter, integration activity peaked as we transitioned [Cheddar’s] to Darden’s proprietary point-of-sale system,” Lee told financial analysts. “As we pushed the integration process to completion, it became apparent the team was losing focus on the fundamentals.

“This is really back to basics,” he added. 

Lee detailed a turnaround program with three main thrusts:

  • Hiring aggressively to reverse what Lee characterized as understaffing at the unit level.
  • Teaching Cheddar’s employees to use the management and operational tools they’ve been provided during the assimilation. “As with past acquisitions, this will take time,” he said.
  • Simplification, presumably of the menu and operations. “This is a complex operation that must be simplified in order to improve execution,” Lee explained.
     

He observed that the game plan is essentially the same one Darden used 10 years ago when it absorbed the LongHorn Steakhouse chain after the company bought Rare Hospitality.

“Cheddar’s is going to work its way through this, and it’s going to be a dynamic brand,” said Lee, who joined Darden through that acquisition.

He noted that simplification was a major reason for Olive Garden’s strong performance during the quarter. The workhorse of Darden’s portfolio posted a same-store sales increase of 2.4%. The Italian chain’s total sales for the fiscal year were $4.1 billion, which makes it second only to Applebee’s on the rankings of casual chains by sales.

LongHorn also posted a 2.4% comp gain for the quarter. 

Darden’s two high-end concepts, Eddie V’s and The Capital Grille, led the pack with same-store sales gains of 3.6% and 2.6%, respectively. 

Yard House generated a 1.4% rise in comps, while Bahama Breeze posted a 0.6% increase, and Seasons 52 notched a 0.4% uptick.

Lee characterized the current environment as a favorable one for casual chains that have a distinctive market position and offer good value.

Overall, Darden reported a net income of $174.5 million, a 41% jump, on revenues of $2.13 billion, up 10%.

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