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Why everybody isn’t posting numbers like Darden Restaurants’

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reality check

After another quarter of solid same-store sales gains for Olive Garden, The Capital Grille and LongHorn Steakhouse, parent Darden Restaurants once again disappointed investors looking for a soundbite explanation of why. A blended comp of 2.8%, across all eight of the casual-dining giant’s brands, was the payoff from a strategy drafted four years ago, CEO Gene Lee said in detailing results for the third quarter ended Feb. 24. “It continues to drive our success,” he told financial analysts.

So what is this magical formula that generated comp gains of 4.3% for Olive Garden and Capital Grille and 3.8% for LongHorn? 

There are no magic beans, special potions or Hogwarts charms, Lee indicated. Indeed, not all of Darden’s casual chains generated gains during the period. Cold and rainy weather left Yard House, Bahama Breeze and Seasons 52 with negative comps of 2.1%, 3.7% and 1.3%, respectively. 

He also acknowledged that a turnaround of Cheddar’s Scratch Kitchen, the most recent addition to Darden’s fold, is taking longer than he’d like. The broad-menu concept posted a comp decline of 2.7%. 

But the company has fared well as a whole by pursuing several strategic initiatives, including these:

Undercutting competitors on price by leveraging the company’s scale. Executives repeatedly cited the example of chicken Alfredo, a signature of Olive Garden, by far the biggest brand in Darden’s portfolio. During the quarter, the amount of chicken in the dish was increased by 50% without a corresponding increase in price. The dish continues to “do extremely well,” noted Lee. It fits the chain’s efforts to offer everyday value.

Boosting throughput through data science and simplification.Olive Garden set new sales records for December because restaurant crews planned ahead of time for the surge, part of a stepped-up emphasis on using data to operate more effectively, executives said. Throughput was also helped by an ongoing effort to simplify operations, they added.  

“Our continued efforts to simplify operations is probably the biggest driver of our ability execute at a higher level,” said CFO Rick Cardenas.

The benefits were particularly evident at LongHorn, according to Lee.

“Our leadership teams remain focused on simplifying the business and they continue to find more ways to do so,” he said. He also stressed that simplification within Cheddar’s is a top priority.

Finding new takeout opportunities and efficiencies. The quarter included Valentine’s Day, traditionally a time when lovers go out for a romantic dinner. Olive Garden raised its off-premise sales for the day by 20%, eclipsing the 13% rise for the quarter as a whole. The number of takeout orders placed online soared 52%.

Overall, takeout and catering—what Olive Garden calls big order delivery—accounted for 15.9% of the chain’s sales for the quarter. The brand does not offer delivery of orders below $100.

Darden posted a net income for the quarter of $223.6 million, a 2.7% increase over the year-ago figure, on revenues of $2.25 billion, up 5.5%.

The company ended the quarter with 1,772 restaurants,  virtually all of them corporately run. 

 

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