Financing

Olive Garden's parent is preparing for a slowing economy

Stagnant spending will keep a lid on growth at Darden Restaurants over the next 12 months, but it still expects to outpace the industry.
Olive Garden
Olive Garden same-store sales rose 4.4% in Darden's fiscal fourth quarter. | Photo: Shutterstock

Olive Garden parent Darden Restaurants on Thursday shared a dim outlook on traffic over the next 12 months as consumer spending stagnates.

It has not seen a significant pullback from guests just yet, executives said. But it is nonetheless preparing for a slowing economy that will make it increasingly difficult to draw in more customers.

“For the last four quarters, GDP has continued to tick down,” CEO Rick Cardenas said during an earnings call. “And that would mean that traffic would tick down everywhere, whether it's at a restaurant or it's in a retail establishment, wherever it is.”

Last week, nonprofit researcher The Conference Board said it expects real GDP to grow 1% this year and be flat in 2024.

Darden predicted that traffic at its nine brands would be flat to down 1.5% year over year for its fiscal year, which runs through next spring. But it still expects to outpace the industry on traffic. In the most recent quarter, overall casual-dining traffic fell 7%, executives said, citing data from Black Box Intelligence, while Darden’s was down 1.6%.

“We continue to hope that we're going to buck the trend of guest counts that the industry has, and we would expect to have a gap to the industry,” Cardenas said. 

To do that, Cardenas said Darden will focus on controlling what it can control: customers’ experience and the value its restaurants provide.

He added that Olive Garden will consider bringing back its popular Never Ending Pasta Bowl promotion, which gave the chain a big sales and traffic lift last fall.

Despite the bleak macroeconomic situation, the CEO maintained that Darden is not seeing anything concerning from its casual-dining customers. “There appears to be only minimal switching between lower-priced occasions at this point,” he said, and guests don’t seem to be ordering fewer sides or desserts.

In the quarter ended May 28, Olive Garden same-store sales rose 4.4% year over year, LongHorn Steakhouse sales increased 7.1%, and Darden’s “other” category (Cheddar’s and Yard House) grew sales 2.2%. 

Darden’s fine-dining concepts—The Capital Grille, Eddie V’s and Seasons 52—were a different story. They struggled in the company’s fourth fiscal quarter, when sales fell nearly 2%. (The newly acquired Ruth’s Chris was not included in the results.)

Executives blamed the decline on tough comparisons to the same period last year, when diners were living large following the omicron wave of COVID-19. Fewer people are visiting fine-dining concepts now, although traffic is still above pre-pandemic levels. They’re also not spending as lavishly when they do, particularly on alcohol.

“There was probably a little bit of euphoria in check last year,” Cardenas said. Darden expects to see a similar shortfall in its current quarter, after which fine-dining traffic will “stabilize.”

For fiscal 2024, Darden is projecting same-store sales growth of 2.5% to 3.5%, price increases of 3.5% to 4%, and total inflation of 3% to 4%. It also expects to open 50 new restaurants. 

Its biggest brand, the 905-unit Olive Garden, should fall in the middle of the same-store sales range, said CFO Raj Venam. LongHorn will grow faster because of beef inflation and higher prices, while fine dining will likely fall short of 2.5% same-store sales growth.

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