Fifteen months after redefining casual dining’s core issue as the need for quality employees, Darden Restaurants CEO Gene Lee cited LongHorn Steakhouse’s 6.7% jump in same-store sales for the second quarter ended Nov. 24 as telling evidence.
“The most unique thing about LongHorn in this environment is that it is a smaller box with less employees than the average casual-dining restaurant,” said Lee, whose charges also include Olive Garden, Cheddar's Scratch Kitchen, The Capital Grille, Seasons 52 and Bahama Breeze, among others. “Their ability to attract a top-quality employee, train them and retain them enables them to execute at a higher level.”
The 518-unit LongHorn chain, the second-largest among Darden’s eight casual operations, outpaced all of its sisters in comp sales gains. The next closest was The Capital Grille, with an upswing of 1.8%, followed by the company’s workhorse, 867-unit Olive Garden, with a 1.5% increase.
Darden’s stock value fell 4% immediately after Q2 results were disclosed because Wall Street had expected a stronger performance by Olive Garden.
Comps were negative for Darden’s smaller brands, including its newest addition, Cheddar's (down 1.2%). The largest drop was posted by Seasons 52 (3.5%), followed by Bahama Breeze (3.4%).
Lee attributed Olive Garden’s challenges to a rough start to the quarter and tough comparisons with the year-ago period, when several value-oriented promotions were embraced to drive traffic.
“We definitely had a tough route,” he said, though he added, “it continues to take market share.”
Lee noted that the Italian chain’s off-premise business grew 17%, in large part because of a limited-time promotion that offered a take-home entree for $5 for every one that was eaten on-premise.
Digital sales increased overall by 33%, Lee added.
The company intends to keep off-premise business rising in part by devoting more restaurant space and kitchen equipment to fulfilling to-go and catering orders. “That will be a big effort over the next 12 to 18 months,” he said. “We think we can take some additional friction out for the consumer.”
Overall, Darden’s Q2 revenues rose 4.2% over the year-ago tally, to just over $2 billion, yielding a net income of $24.7 million, down 78.6%. The company said that it paid more for labor and marketing during the 2019 quarter.