Darden Restaurants Inc (DRI) stumbled out of the gate in its fiscal first quarter, reporting weaker-than-expected earnings as sales at its fine dining restaurants and Olive Garden struggled. The summer months saw sales fall short of expectations, with revenue for the quarter ending August 25th reaching $2.76 billion, a 1% year-over-year increase, but missing LSEG’s consensus estimate of $2.8 billion. Same-store sales declined by 1.1%.
Like its restaurant peers, Darden faced headwinds from decreased traffic during the summer, likely due to increased travel. Olive Garden saw same-store sales contract by 2.9%, while fine dining experienced an even steeper drop of 6%. The only bright spot was LongHorn Steakhouse, which reported a 3.7% increase in sales.
Despite the sales struggles, net income rose to $207.2 million, or $1.74 per share, from the same period last year. Excluding costs associated with the July acquisition of Chuy’s, adjusted earnings came in at $1.75 per share.
Looking ahead, Darden expects the Chuy’s deal to close during the current fiscal second quarter. This is also when the results of its second acquisition in two years, Ruth’s Chris Steak House, will be reflected in same-store sales figures. Despite the challenging quarter, Darden reaffirmed its fiscal 2025-year guidance, projecting net sales between $11.8 billion and $11.9 billion and earnings from continuous operations ranging from $9.40 to $9.60 per share.
While acknowledging the disappointing results, CEO Rick Cardenas remains confident in the company’s future. He believes that initiatives aimed at boosting revenue and addressing customer needs, including the company’s first partnership with Uber Technologies Inc (UBER), will soon bring about the desired improvements without jeopardizing long-term growth. Darden’s partnership with Uber represents a significant shift for the company, ending its resistance to third-party delivery, a strategy it maintained even during the pandemic when Uber thrived.
In an effort to attract customers back, Olive Garden is bringing back its ‘Never Ending Pasta Bowl’ promotion a month earlier than usual and extending it for three weeks compared to last year. Darden, like its industry peers, is navigating the challenging macroenvironment with value promotions, menu revamping, and strategic partnerships.
The company is hoping that Uber will contribute to a sales rebound and that the summer slump was merely a temporary setback. The future success of Darden will depend on its ability to adapt to changing consumer preferences, manage costs, and leverage its new partnerships.
