DRI is a company that operates full-service dining establishments across North America, primarily in the U.S., managing several well-known restaurant brands . The company offers a diverse range of dining experiences through its various brands, selling food and beverages without reliance on any major customers . DRI organizes its operations into four main segments, each contributing to its overall business strategy and revenue generation .
- Olive Garden - Offers Italian cuisine with a focus on fresh ingredients and quality, significantly contributing to the company's revenue .
- LongHorn Steakhouse - Known for its steak and American West-inspired atmosphere, playing a major role in revenue generation .
- Fine Dining - Includes premium brands such as Ruth’s Chris, The Capital Grille, and Eddie V’s, providing upscale dining experiences .
- Other Business - Encompasses a variety of dining experiences with brands like Cheddar’s Scratch Kitchen, Yard House, Seasons 52, Bahama Breeze, and The Capital Burger .
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What went well
- Olive Garden's Never Ending Pasta promotion outperformed expectations, with record consumers opting for protein add-ons and record refills, demonstrating strong guest engagement and value perception.
- Darden Restaurants' underlying traffic trends improved across all brands, even after adjusting for holiday shifts and weather impacts, indicating resilience and positive momentum in customer demand.
- The acquisition of Chuy's added approximately 5 units to unit growth guidance, showcasing Darden's strategic expansion opportunities and strengthening their portfolio.
What went wrong
- Fine Dining segment experienced a same-restaurant sales decrease of approximately 3.8%, even after adjusting for the Thanksgiving shift and hurricanes. This indicates ongoing weakness in this segment. Additionally, higher-end brands may be impacted by GLP-1 drugs, potentially affecting future performance.
- General and Administrative (G&A) expenses are expected to increase to approximately $470 million, up from the previously guided $450 million, due to the Chuy's acquisition. This increase may impact overall profitability.
- The company anticipates increased inflation in commodities, particularly beef, chicken, and seafood, in the back half of the fiscal year. These categories are turning inflationary in low single digits, which could pressure margins if not offset by pricing or cost efficiencies.
Q&A Summary
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Fiscal '25 Comp Guidance
Q: Why tighten comp guidance to 1.5% with two quarters left?
A: Darden tightened its fiscal '25 same-restaurant sales guidance to approximately 1.5% due to increased confidence in sales trends, incorporating underlying multiyear trends and actions planned for the second half. This suggests Olive Garden and LongHorn are expected to be above that level, given the brand mix. -
Total Inflation & Margins
Q: What's the outlook for total inflation and margins in 2025?
A: Total inflation is expected to be approximately 2.5% for fiscal 2025, with food and beverage costs increasing in the back half due to beef, chicken, and seafood turning inflationary. Labor inflation remains in the high 3% range, and margins are expected to be impacted accordingly, particularly in Q4. -
CapEx Increase & Unit Growth
Q: Why did CapEx guidance step up significantly?
A: The CapEx increase is primarily due to the inclusion of Chuy's with five additional openings, and investments to build the pipeline for next fiscal year, aiming for higher unit growth. Maintenance CapEx remains around $300 million annually. -
Labor Efficiencies
Q: How are you addressing rising labor costs and efficiencies?
A: Labor costs have grown less than wage inflation due to significant improvements in turnover, reaching historic low levels. Continuous improvements in service steps and process streamlining are ongoing to drive efficiencies while enhancing guest experience. -
Uber Eats Partnership Impact
Q: Is Uber Eats partnership impacting guidance and sales?
A: The impact from the Uber Eats partnership is currently minimal, with delivery sales at about 1.5% of sales across pilot restaurants. No significant incremental sales from Uber are included in fiscal year guidance. The rollout is expected to complete by the end of Q3, with marketing efforts planned thereafter. -
Beef Inflation Outlook
Q: What's the outlook on beef inflation and supply coverage?
A: Beef prices are up significantly year-over-year due to retailer promotions. Darden expects seasonal dips in early 2025 to provide opportunities for further coverage. Currently, 40% of beef needs are covered at low single-digit inflation, and supply chain strategies have kept costs below market levels. -
Cheddar's Growth Prospects
Q: Is Cheddar's ready for faster unit growth?
A: Cheddar's operational improvements and successful new prototypes have increased confidence in expanding the brand. Plans are underway to build the pipeline for greater unit growth, aiming toward the higher end of Darden's framework. -
Fine Dining & GLP-1 Impact
Q: Are GLP-1 drugs affecting Fine Dining performance?
A: Fine Dining brands have seen softer growth, possibly impacted by GLP-1 usage, which is about 6% of the population. Consumers earning less than $50,000 are pulling back on Fine Dining visits, affecting traffic. -
Olive Garden Marketing Spend
Q: Is reduced advertising spend impacting Olive Garden's sales?
A: Olive Garden's advertising spend is down by 25–30%, not half as previously suggested. The company remains flexible with marketing, increasing spend when appropriate, and plans to adjust advertising strategies based on promotions and competitive dynamics. -
LongHorn's Strong Performance
Q: What's driving LongHorn's continued strong sales?
A: LongHorn's focus on quality and experience, including investments in food quality and operational execution, is driving its strong performance. The brand reported a 7.5% same-restaurant sales increase, with positive traffic and mix contributions. Marketing spend has decreased significantly, relying on brand strength over promotions. -
Never Ending Pasta Bowl Results
Q: How did the Never Ending Pasta Bowl promotion perform?
A: The promotion exceeded expectations with record refills and upsells on protein add-ons. It drove strong weeks when run against no prior promotion and maintained guest interest without wear-out. Positive mix contributed to Olive Garden's same-restaurant sales growth. -
Consumer Trends & Trade-down
Q: Are you seeing consumers trade down among your brands?
A: There is some evidence of consumers trading down from Fine Dining to Casual Dining, possibly benefiting brands like LongHorn. Improvement in visits from guests earning $50,000 to $100,000 indicates a healthier middle-class consumer segment returning to casual dining experiences.
- Given that you fell short of your expectations for the first quarter, can you elaborate on the specific factors that led to this underperformance and what corrective actions you're implementing to address them?
- With your focus on improving speed of service to meet the faster-paced needs of today's consumers, what specific operational changes are you making to accelerate service without compromising the guest experience, and how will you measure success in this area?
- Considering that many brands source a significant portion of their delivery sales from third-party marketplaces, why have you decided against offering Olive Garden on Uber's marketplace platform, and how do you plan to drive sufficient incremental sales through your first-party delivery to offset potential missed opportunities?
- In light of the challenges faced in the Fine Dining segment and decreased visits from aspirational consumers, what strategies are you employing to reinvigorate growth without diluting your brand, and how do you plan to attract new customers while retaining your discerning frequent diners?
- Despite spending below historical levels on marketing for Olive Garden, particularly in price-point advertising, why are you hesitant to increase marketing spend to apply more pressure on competitors, and how do you balance cost savings with the potential for driving incremental traffic through increased advertising investment?
Q1 2025 Earnings Call
- Issued Period: Q1 2025
- Guided Period: FY 2025
- Guidance:
- Earnings Growth: 6% to 8% .
- General and Administrative (G&A) Expenses: $450 million for the year, with $125 million in Q1 and $105 to $110 million per quarter thereafter .
- Pricing: 2.5% to 3% for fiscal 2025 .
- Commodity Inflation: Approximately 2% for the full year .
- Labor Costs: Labor inflation around 4% .
- Chuy's Acquisition: Expected to be neutral to adjusted earnings per share, excluding transaction and integration-related expenses .
Q4 2024 Earnings Call
- Issued Period: Q4 2024
- Guided Period: FY 2025
- Guidance:
- Total Sales: $11.8 billion to $11.9 billion .
- Same-Restaurant Sales Growth: 1% to 2% .
- New Restaurants: 45 to 50 new restaurants .
- Capital Spending: $550 million to $600 million .
- Total Inflation: Approximately 3%, including commodities inflation of 2% and labor inflation of 4% .
- Annual Effective Tax Rate: Approximately 13% .
- Diluted Average Shares Outstanding: Approximately 119 million .
- Diluted Net Earnings Per Share: $9.40 to $9.60 .
- Quarterly Dividend: 7% increase to $1.40 per share, implying an annual dividend of $5.60 .
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: FY 2024 and FY 2025
- Guidance for FY 2024:
- Total Sales: Approximately $11.4 billion.
- Same-Restaurant Sales Growth: 1.5% to 2%.
- New Restaurants: 50 to 55 new restaurants.
- Capital Spending: Approximately $600 million.
- Total Inflation: Approximately 3%, including commodities inflation of 1.5%.
- Annual Effective Tax Rate: 12% to 12.5%.
- Diluted Average Shares Outstanding: Approximately 121 million.
- Adjusted Diluted Net Earnings Per Share: $8.80 to $8.90, excluding $55 million of pretax transaction and integration-related costs.
- Guidance for Q4 2024:
- Sales: $2.95 billion to $2.99 billion.
- Same-Restaurant Sales: Between negative 0.5% and positive 1%.
- Adjusted Diluted Net Earnings Per Share: Between $2.58 and $2.68.
- Guidance for FY 2025:
- New Restaurants: 45 to 50 new restaurants.
- Capital Spending for New Restaurants: $250 million to $300 million.
- Capital Spending for Maintenance, Refresh, and Technology: Approximately $300 million.
- Effective Tax Rate: Approximately 13% .
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Total Sales: Approximately $11.5 billion .
- Same-Restaurant Sales Growth: 2.5% to 3% .
- New Restaurants: 50 to 55 new restaurants .
- Capital Spending: Approximately $600 million .
- Total Inflation: 3% to 3.5%, including commodities inflation of 2% .
- Annual Effective Tax Rate: 12% to 12.5% .
- Diluted Average Shares Outstanding: Approximately 121 million .
- Adjusted Diluted Net Earnings Per Share: $8.75 to $8.90, excluding $55 million of pretax transaction and integration-related costs .
- EPS Growth Rate: Third quarter growth rate expected to be similar to the first quarter, and the fourth quarter to have the lowest EPS growth rate for the year .
- Pricing and Inflation: Pricing and inflation expected to be relatively equal in the third quarter, with pricing significantly below inflation in the fourth quarter .
Recent developments and announcements about DRI.
Financial Reporting
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Revenue and Profit Performance: DRI reported total sales of $2.9 billion for the second quarter, which is a 6% increase from the previous year. This growth was driven by same-restaurant sales of 2.4%, the acquisition of 103 Chuy's restaurants, and the addition of 39 net new restaurants. Adjusted diluted net earnings per share from continuing operations were $2.03, a 10% increase from the previous year .
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Management’s Forward Guidance: For fiscal 2025, DRI expects total sales of approximately $12.1 billion, including $300 million from Chuy's. They anticipate same-restaurant sales growth of approximately 1.5% and plan to open 50 to 55 new restaurants. The company also expects capital spending of approximately $650 million and an annual effective tax rate of approximately 12.5% .
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Market Conditions and Strategic Initiatives: The company noted that the Thanksgiving holiday shift and hurricanes had a significant impact on their Fine Dining segment, which saw a decrease in same-restaurant sales. However, they are optimistic about the integration of Chuy's and expect to realize synergies from this acquisition .
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Analyst Questions and Management Responses: Analysts inquired about various topics, including the impact of the Uber Eats partnership on sales, which was noted to be minimal at this stage . There were also questions about the company's advertising strategy and menu innovation, with management indicating potential increases in marketing efforts and new menu items being introduced .
- Olive Garden: Sales of $1,292.5 million with a segment profit of $277.1 million.
- LongHorn Steakhouse: Sales of $710.1 million with a segment profit of $134.2 million.
- Fine Dining: Sales of $306.0 million with a segment profit of $52.7 million.
- Other Business: Sales of $581.4 million with a segment profit of $79.2 million .
Earnings Call
The company DRI recently held an earnings call where they discussed their second quarter results and provided guidance for the future. Here are the key points from the call:
Overall, DRI is focusing on expanding its restaurant portfolio and optimizing its operations to drive growth in the coming fiscal year.
Earnings Report
Darden Restaurants, Inc. has released its fiscal 2025 second quarter earnings results. Total sales for the quarter increased by 6.0% to $2.9 billion, driven by a blended same-restaurant sales increase of 2.4% and the addition of 103 Chuy's restaurants and 39 net new restaurants . The reported diluted net earnings per share from continuing operations were $1.82. Excluding $0.21 of Chuy's transaction and integration related costs, the adjusted diluted net earnings per share from continuing operations were $2.03, marking a 10.3% increase .
Segment Performance:
Darden's Board of Directors declared a quarterly cash dividend of $1.40 per share, payable on February 3, 2025, to shareholders of record at the close of business on January 10, 2025 .
The company also updated its fiscal 2025 financial outlook, projecting total sales of approximately $12.1 billion and diluted net earnings per share from continuing operations of $9.40 to $9.60, excluding approximately $47 million of Chuy's transaction and integration related costs .
Corporate Leadership
Board Change
Daryl A. Kenningham has been elected as a new member of the Board of Directors of Darden Restaurants, Inc., effective immediately as of December 9, 2024. The board size has increased from nine to ten members with his appointment. Mr. Kenningham will also serve on the Audit Committee and the Compensation Committee of the Board .