Release Date: September 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Darden Restaurants Inc (DRI, Financial) reported industry-leading margins and generated more adjusted EBITDA than the prior year, highlighting the durability and cash generation of their business model.
- The company introduced successful new menu items across its brands, such as Olive Garden's Steak Gorgonzola Alfredo and LongHorn Steakhouse's lemon garlic chicken, which have been well-received by guests.
- Darden Restaurants Inc (DRI) has a strong focus on operational execution, including culinary innovation, attentive service, and an engaging atmosphere, supported by effective marketing programs.
- The partnership with Uber for first-party delivery is expected to enhance the take-out experience without disrupting restaurant operations or compromising the business model.
- Darden Restaurants Inc (DRI) continues to invest in maintaining and remodeling its restaurants, spending approximately $200,000 per restaurant annually to keep facilities fresh and inviting.
Negative Points
- Darden Restaurants Inc (DRI) experienced a significant step-down in traffic beginning with the Fourth of July holiday, leading to lower-than-expected earnings results for the first quarter.
- Olive Garden's same-restaurant sales decreased by 2.9%, underperforming the industry benchmark by 40 basis points.
- The fine dining segment faced challenges, with negative same-restaurant sales at both Capital Grille and Eddie V's, resulting in lower segment profit margins.
- Despite the sales rebound in August, the first quarter saw negative same-restaurant sales of 1.1%, impacting overall performance.
- The company acknowledged that the full-service restaurant category has not kept up with the faster pace of the world, indicating a need for improvement in evaluating guest time and capturing quicker-meal occasions.
Q & A Highlights
Q: As it relates to the Uber partnership, have you conducted an analysis on how impactful this could be for Olive Garden once fully rolled out? Are there plans to add more partners, or will this be an exclusive partnership for some period of time?
A: (Ricardo Cardenas, President, CEO, Director) We'll learn quite a bit from the pilot, but we do have some estimates from Uber that are pretty big. We're just not assuming that. We do expect the incrementality to grow over time. We have a two-year exclusive with Uber, but we have the ability to expand it to other brands if it works for Olive Garden. Right now, we're focusing on Olive Garden and getting the pilot up and running.
Q: What's driving the improvement in September? How are you thinking about promotions moving forward and the opportunity to use that lever?
A: (Ricardo Cardenas, President, CEO, Director) September improvements are seen across the industry. All of our performance is contemplated in our guidance. Olive Garden has priced below inflation over the years, but consumers are looking for more price certainty. We will add more price points throughout the year and may have some limited-time offers in the back half of the year, but they will fit our filters of being simple to execute, not at a deep discount, and strengthening our competitive advantages.
Q: Is there no pilot at other brands contemplated in '25? Do you think that would come in '26?
A: (Ricardo Cardenas, President, CEO, Director) Right now, we're focusing on Olive Garden. We do have the ability to pilot other brands even in this fiscal year. We want to ensure the systems work well before expanding to other brands. We have pricing options from Uber for every one of our brands, but it's up to those brands to decide if they want to do it.
Q: Can you talk more about the service opportunity, focusing on speed and pace of meals? What specifically could change?
A: (Ricardo Cardenas, President, CEO, Director) This is about valuing our guests' time. The world has gotten faster, and full-service restaurants haven't kept up. We believe there's an opportunity to drive incremental sales by capturing quicker-meal occasions. This will take time and will be done job by job to improve our speed without making guests feel rushed.
Q: Are there plans for advertising the delivery option? Will you advertise on the Uber Eats platform?
A: (Ricardo Cardenas, President, CEO, Director) We do not plan to advertise on Uber Eats. We have marketing funds from Uber to help us market the delivery option. Consumers will see the delivery option when they place a to-go order on our apps or website. We also have a 17 million-plus guest eClub at Olive Garden that we can market to.
Q: Can you give us the traffic check and mix components for Olive Garden and LongHorn for the quarter?
A: (Rajesh Vennam, CFO, SVP) Olive Garden's pricing was just south of 2%, with a little positive mix, resulting in negative mid-5s for traffic. LongHorn had positive traffic of 0.7%, with check growth of 3% and pricing in the high 2s.
Q: Can you talk about the price point advertising in Olive Garden? Are there thoughts on increasing the level of spend to put more pressure on competitors?
A: (Rajesh Vennam, CFO, SVP) We want to be thoughtful about marketing spend. If we see a return on investment, we're willing to make the investment. We're focused on the long-term health of the business and building it over time.
Q: What's driving the big downtick in the fine dining segment, and when do you expect it to recover?
A: (Rajesh Vennam, CFO, SVP) The fine dining segment has been challenged, especially during the summer months. Factors include international travel and other luxury spending. We expect a gradual build-back but don't have an exact timing. There's a clear difference between suburban and urban markets, with suburban markets performing better.
Q: Can you shed some light on the Olive Garden customer income cohort responding to Never Ending Pasta Bowl? Is it giving relief to the lower-income consumer cohort?
A: (Rajesh Vennam, CFO, SVP) Never Ending Pasta Bowl gets a lift from consumers across income spectrums up to $150,000. It helps with new and infrequent guests, which is where we might be missing some.
Q: Can you comment on the actions you're taking to address challenges in the fine dining segment?
A: (Ricardo Cardenas, President, CEO, Director) We're focusing on maintaining the quality and experience for our discerning fine dining consumers. We brought back wagyu and wine at Capital Grille, which offers great value. We don't want to market in a way that changes our brand for short-term gains.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
