DARDEN
Darden (DRI) FY1Q24 Non-GAAP EPS of $1.78 beats by $0.04, and Revenue of $2.73B (+11.6% Y/Y) beats by $20M. Total sales increased 11.6% to $2.7 billion, driven by a blended same-restaurant sales increase of 5.0% and sales from the addition of 77 company-owned Ruth's Chris Steak House (Ruth's Chris) restaurants and 46 other net new restaurants. Comps +5% vs. FactSet +3.8% Olive Garden +6.1% vs. FS +5.1% Longhorn +8.1% vs. FS +6.1% Fine Dining (2.8%) vs. FS (1.3%) Other Business +1.7% vs. FS +2.0%
- Food and beverage costs 31.2% vs FS 31.5%
- Restaurant margin 20.4% vs. FS 18.9%
- Operating margin 9.3% vs. FS 10.1%
No change to the guidance
Traffic Trends DPZ & CMG
Yesterday, we highlighted the weakness in MCD traffic and removed it from the LONG bias list. Going over trends for other chains, Taco Bell slowed over the past week but is having a reasonable quarter, and the same can be said for Burger King (I can send the data if you want it). CMG is slowing to levels not seen since 4Q22, when the company reported weak traffic trends, but 3Q23 looks acceptable. The stand out on the positive side is DPZ, which is having a strong September.
The Bloomberg article on SBUX highlights the obvious
The Starbucks Dilemma of Speed Vs. Customization: Starbucks Strives for Efficiency Amid Complexity. Time and Motion is Critical Within the 4-Walls
Starbucks is facing a challenging time as increased complex and customized orders are leading to longer customer wait times. The survey in the Bloomberg article indicates that more than a third of customers now wait over five minutes to receive their orders due to customization. This complexity has pressured Starbucks’ workforce and sparked a union movement. The company is investing billions in operational improvements, including new technology and more efficient bar setups, to streamline the order process. The goal is to increase speed while retaining customer engagement and barista satisfaction. Despite these efforts, it remains uncertain how effective these changes will be, especially as customer habits shift towards drive-thru, mobile, or delivery orders. Howard Schultz, who recently stepped down from a formal role at the company, set the changes in motion and left the current CEO, Laxman Narasimhan, who has zero retail experience, to execute the plan.
We don’t believe this will end well!
Summary Thoughts From the Bloomberg Article:
- Starbucks is experiencing longer wait times, with over a third of customers waiting more than five minutes.
- The menu's complexity and customized drinks contribute to reinventing operations by making everything faster and more efficient. New technologies, like the Siren System, are still in the testing phases. Will the roll-out still unfold in FY24?
- The company has over 37,200 global locations and rode out COVID-19 with a sales surge as the world reopened. Customized online orders are good for revenue but slow down service.
- New CEO Laxman Narasimhan faces many challenges especially the challenge of modernizing Starbucks, as 74% of orders are now drive-thru, mobile, or delivery.
- New initiatives, like faster coffee makers and accurate wait time estimates on its app, aim to speed up service while maintaining quality.
- Employee feedback on changes is generally positive, but some workers question how they can speed up service while also being more personable.
