Darden Restaurants (DRI) Q1 2023 Earnings.

An order of breadsticks from a Darden Restaurants Inc. Olive Garden

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Darden Restaurants reported mixed quarterly results on Thursday, but maintained its outlook for fiscal year 2023, expecting inflation to be cold in the coming quarters.

The parent company of Olive Garden and LongHorn Steakhouse said net sales for the fiscal first quarter were up 6.1% to $ 2.45 billion, lower than Wall Street expectations. Darden has tried to attract customers by pricing below his rivals and limiting the amount of his escalating costs he passes on to diners. During the quarter, its menu prices increased by 6.5%, after total inflation of 9.5%.

However, CEO Rick Cardenas said on the company’s conference call that inflation is weighing on consumers, particularly those in households with an annual income of less than $ 50,000.

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“We are seeing a small change in that consumer’s behavior, but not a huge one,” he said.

Inflation also weighs on the company’s operating profit. During the quarter, Darden’s costs of food, drink and labor increased from the same period last year.

Shares of the company fell more than 4% in morning trading.

Here’s what Darden reported for the quarter ended August 28 compared to what Wall Street was expecting, based on a survey conducted by analysts at Refinitiv:

  • Earnings per share: $ 1.56, compared to estimates
  • Revenue: $ 2.45 billion versus $ 2.47 billion expected

Demand for the company’s two largest chains fell short of expectations during the period. Sales at the same Olive Garden store increased 2.3%, not living up to StreetAccount’s estimates of 5.4%. Cardenas said the chain, which accounted for nearly half of Darden’s revenue during the quarter, is more exposed to low-income consumers.

Demand for the LongHorn Steakhouse also fell short of Wall Street expectations. The chain saw sales growth in the same store of 4.2%, missing the 5.1% estimates.

Overall, the company’s same-store sales increased 4.2%, buoyed by the performance of its fine dining restaurants. The segment, which includes The Capital Grille, saw same-store sales growth of 7.6%. Darden said he saw seasonal changes to demand a return to the business. Before the Covid pandemic, the summer months typically meant a lull in traffic.

Net income for the period was $ 193 million, or $ 1.56 per share, down from $ 230.9 million, or $ 1.75 per share, a year earlier.

For its fiscal year 2023, Darden expects earnings per share from continuing operations of $ 7.40 to $ 8. The company assumes inflation will increase by 6% in the fiscal year. CFO Raj Vennam told investors that the company believes inflation peaked in the first quarter and that the gap between higher costs and menu prices will narrow over the next two quarters. If inflation exceeds expectations, Darden plans to raise prices further.

Darden also expects revenue of between $ 10.2 billion and $ 10.4 billion. It expects sales in the same store to grow from 4% to 6% and from 55 to 60 new restaurant openings in fiscal year 2023.