Restaurant Traffic Improves WoW
For the first two weeks of June, restaurant traffic for Casual Dining and QSR accelerated relative to May. For Casual Dining, the second week saw traffic accelerate from (-4.6%) to (-3.4%); this brings June to date traffic of (-4.0%) from (-5.5%) in May. For QSR, the second week saw traffic accelerate from (-4.0%) to (-2.7%); this brings June to date traffic of (-3.3%) from (-5.0%) in May.
SBUX
Starbucks Corporation (SBUX) workers at about 150 stores have threatened to strike over the company's policy of not being allowed to wear or display Pride month decor. The Workers United Union has also organized the strike due to claims that Starbucks is acting slowly to negotiate labor contracts. For its part, SBUX said it had not revised its store decorations guidelines, including hanging flags and decorations. "There has been no change to any policy on this matter, and we continue to encourage our store leaders to celebrate with their communities, including for U.S. Pride month in June," stated a company spokesperson. The strikes are expected to occur over the next week but will cover only 2% of Starbucks (SBUX) stores in the U.S. The unionization efforts at Starbucks have been playing out slowly and have not been a significant financial consideration so far. While more than 300 stores in the U.S. have voted to unionize, none of the employee groups from those stores have been able to negotiate a bargaining contract with the company.
DRI
Quarter over quarter the DRI management team took a more cautious tone to the macro environment. DRI reported 4Q23 comp growth below with Olive Garden below and LongHorn above; EPS was better on a lower tax rate; FY24 EPS outlook a little soft at the midpoint through guidance should be conservative given difficult macro coupled with some easing cost pressures.
This week, Darden announced its 4Q23 results. The company reported 4Q23 revenue of $2.77 billion, up 6% YoY, driven by 47 net new restaurants and same-restaurant sales growth of 4.0%. Darden was coming off a difficult comparison of 14% sales growth in 4Q22. The numbers were strong, given a more challenging macro environment and a more intensely competitive market where some brands increased their promotional efforts to compensate for the lower traffic numbers. Darden outperformed the industry benchmark in terms of same-restaurant sales and traffic, according to Black Box Intelligence. This was made possible by the company's LongHorn Steakhouse and Olive Garden, whose strong sales growth helped to offset a slower 4Q23 for its Fine Dining and Other segments (Cheddar's, Yard House, Bahama Breeze, Seasons 52). Looking at the Fine Dining segment (The Capital Grille, Eddie V's), Darden noted that the slowdown was partly due to challenging comparisons as it lapped a strong 4Q22 following the Omicron surge in early 2022, with Fine Dining up 34.5% year-over-year to about $210 million in sales. Sales will likely slow in fiscal 1Q24, and we are seeing in the data. The company anticipates traffic to "stabilize" for the remainder of the year. Even if there was some check management at some of its high-end brands, which may simply be ascribed to normalization after some excess in the year-ago quarter, management emphasized that it is not seeing anything problematic from a customer standpoint.
Olive Garden traffic is improving slightly more than the industry.
