Darden Restaurants sees little customer belt-tightening, but less celebratory drinking, too

The parent of Olive Garden and LongHorn said patrons of its hghest-ticket concepts did not indulge in alcohol during Q2 the way they did a year earlier.
The Capital Grille
The Capital Grille is part of the division that saw sales dip because of less "exuberance" at the bar. | Photo: Shutterstock

Darden Restaurants is seeing few customers trade down to less expensive food choices when they visit one of the company’s many full-service restaurant brands, company officials said Friday. But they have reined in their drinking at the pricier places.

The executives cited a year-over-year slide in alcohol sales as the key reason for a 1.7% decline in the same-store sales of Darden’s fine-dining concepts for the second quarter ended Nov. 26. Those high-ticket operations include The Capital Grille and Eddie V’s.

The issue, they said, was not so much an abnormal fall in wine, cocktail and beer orders, but rather tough comparisons with the year-ago quarter, when customers indulged with an exuberance that appears to have waned as memories of the pandemic dim.

Their comments came in an analysis of Q2 results during a call with financial analysts. Management was quick to portray the downturn at the high end of their restaurant array as a peculiar development that already appears to be over. They noted that the higher-ticket concepts’ bookings for the holiday have been robust, though they declined to reveal any figures.

Plus, “as much as they had negative sales, they were still above the industry,” said CFO Raj Vennam. “When we look at traffic in the quarter, it was actually very strong.”

Analysts repeatedly asked Vennam and CEO Rick Cardenas for any changes they detected in consumers’ mindset and behavior during Q2. Did Darden see any significant trade-down or other shifts in spending behavior?

Not to a concerning degree, they persistently answered. “We see some check softness, which is offset by inflation,” said Vennam.

“The consumer continues to appear both resilient but a little bit more selective,” said Cardenas. “Nothing we have seen is altering our plans for the balance of the year. We don’t anticipate doing anything different.”

They contended that there was no need, since the brands held steady on pricing during Q2, leaving menu charges about 3% above where they were a year ago.

Plus, research showed growth in the count of high-income customers and a slip in the percentage of patrons with household incomes of $50,000 or below. Most of what the company calls check management, or ordering specifically to hold down tabs, came in that lower-income group, management indicated.

Still, Vennam indicated that the company expects traffic across its brands to remain flat to slightly down.

Darden’s concepts range in pricing from Cheddar’s Scratch Kitchen, at the low end, up to The Capital Grille and Eddie V’s. Its mid-market brands, which also happen to be among its largest, are Olive Garden, whose Q2 comps rose 4.1%, and LongHorn Steakhouse, which posted a 4.9% gain. Traffic was flat at the Italian chain and down a point at the steak brand.

Its Other division is a mixed bag that includes Bahama Breeze and Yard House.  Same-store sales for that category slid 1.1%.

Executives also provided an update on the assimilation of Ruth’s Chris Steakhouse, the high-end chain Darden acquired for $715 million in June. The company said it would not break out financial information for Ruth’s until the brand has been part of the portfolio for a year. But it revealed that changes in its operations are already being made.

They include a discontinuation of Ruth’s offer of third-party delivery, which Darden does not offer through any of its other brands, either. The company is also dropping lunch service “wherever possible,” Cardenas said.

Darden finished Q2 with 2,010 restaurants, a tally that reflects the addition of 78 Ruth’s Chris steakhouses.

For the quarter, the company posted a net income of $212.1 million, a 13.3% rise from the prior year, on revenues of $2.73 billion, up 9.7%.

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