Darden’s First Peak into 3Q22 Restaurant Results

Sep 26, 2022 | Corporate Insights, No Bull Economics

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•Darden’s sales during FY1Q23 (8/28/22) were up +6.1% y/y with a +4.2% increase in same-store-sales for all its brands (including +2.3% for Olive Garden, +4.2% for LongHorn & +7.6% for fine dining).

•Olive Garden’s comps were pressured by a strategic reduction in promotions and marketing.

•Menu pricing was up +6.5% y/y which was kept beneath its +9.5% y/y cost inflation which management believes has peaked. Olive Garden’s 3-year menu pricing is up +10.2%.

•Darden expects commodity inflation to slow down to +7% to +7.5% for the fiscal year 2023.

•Chicken, wheat & cheese are all very inflated now (representing a large part of Olive Garden’s menu), but other than this, Darden indicates every other aspect of its business has improved to better than pre-covid levels.

•Notably, staffing has improved dramatically, with an increase in applications & an increase in new talent.

•In any case, the $50k income demo is suffering from high gas prices and cutting back on discretionary purchases, such as meals at Olive Garden. While this demo represents a significant mix of its customer base for Olive Garden & Cheddars, this is balanced by Darden’s higher-end brands (Seasons 52, Yard House & LongHorn) which benefit from a return of the higher-income demo to fine dining.

•Darden’s operating margin was 10% during the quarter (32.5% COGs & 32.5% labor) down from 12% during fiscal 1Q22 (29.7% COGs & 31.9% labor), reflecting the company’s struggle to fully pass-along its cost inflation.

•Comp guidance for its fiscal year 2023 is up +4% to +6%.

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