Darden Dishes Out Earnings: A Recipe for Success in the Culinary World?
Darden is poised to unveil its 2Q24 earnings on December 15th, before the market opens, with a forecasted 2.7% increase in comparable sales vs 7.3% last year. Olive Garden, the largest brand in their portfolio, mirrors this trend with a similar 2.7% rise. Longhorn Steakhouse outpaces with a robust 5.0% growth, while the fine dining segment faces a slight contraction of (0.6%.) The 'Other Business' category shows a modest 1.4% uptick. Revenue projections stand at an impressive 2.74 billion, up 10.2%. Food and beverage costs are expected to consume 31.5% of this, yet the restaurant margin remains healthy at 18.7%, up 17.8% last year. The operating margin is projected at 10.0% (vs. 9.4%), with EPS anticipated to be 1.74, up 14.2% YoY.
Looking ahead to 3Q24, the street is forecasted to have a 2.4% increase in comparable sales. Olive Garden is predicted to see a 2.6% rise, while Longhorn Steakhouse's growth is expected at 3.4%. The fine dining sector is set to rebound slightly with a 0.6% increase. Other Business segments are projected to grow by 1.8%. Revenue for 3Q24 is estimated to reach 3.07 billion, up 10.2%. Food and beverage costs are expected to increase slightly to 31.6% of revenue. However, the restaurant margin is forecasted to improve to 20.6%, and the operating margin is anticipated to rise to 12.8%. EPS for Q3 is projected at 2.62, up 11.8% YoY.
In October, Olive Garden saw strong traffic trends up 7%. In October 2023, Olive Garden unveiled a series of enticing offers. Patrons could indulge in unlimited Soup, Salad, and Breadsticks. For those with a penchant for pasta, the Never-Ending Pasta Bowl was introduced, with prices commencing at 13.99. The Lunch Favorites, available at a starting price of 7.99, were exclusive to weekdays before 3 PM. A remarkable deal was presented: 6 take-home entrees, allowing guests to enjoy a taste of Olive Garden at home.
In contrast to the 2023 offerings, Olive Garden's October 2022 promotions featured various choices. The 6 Take Home Entrees included a selection of Fettuccine Alfredo, Five Cheese Ziti al Forno, Spaghetti with Meat Sauce, and Stuffed Fettuccine Alfredo. The Never-Ending Pasta Bowl remained a staple, alongside the seasonal addition of Pumpkin Cheesecake. Lunch Favorites were available starting at 7.99, exclusive to weekdays before 3 PM. Adding to the allure, 18 Wine Bottles To Go were introduced, complemented by a range of Italian-inspired cocktails. The classic Never-Ending Soup, Salad, and Breadsticks remained a mainstay.
For the full fiscal year ending in May 2024, Darden Restaurants will likely maintain guidance for EPS in the range of 8.55 to 8.85, reflecting the company's strategic initiatives and market dynamics.
Decoding the Digits: Unsurprising Trends in Menu Prices
Over the last year, a discernible uptick in dining costs has unfolded. Data from the Bureau of Labor Statistics indicates that the Consumer Price Index for Food Away from Home climbed 5.3% between November 2022 and November 2023. This increment, while notable, signifies a deceleration in growth, marking the smallest year-over-year increase since October 2021. Parallel to this, the grocery sector experienced a more modest escalation. The Consumer Price Index for Food at Home increased by just 1.7% during the same period, the smallest annual rise since June 2021. Despite these varying growth rates, grocery and menu prices have surged by 24% since the pandemic's onset in February 2020. The broader economic canvas also reflects a gradual increase in costs. Overall consumer prices rose by 3.1% over this period, with the core Consumer Price Index, which excludes food and energy, climbing by 4.0%. In the specific realm of food-away-from-home, a divergence is evident. Prices in the limited-service segment, which includes quick meals and snacks, advanced by 6.0%, surpassing the growth in full-service menus, which saw a 4.3% rise. Additionally, prices for vending machines and mobile vendors experienced a significant jump, soaring 14.6%. In contrast, the price index for food at employee sites and schools increased by 4.0%. On a regional scale, the South, West, and Northeast experienced the most pronounced menu price increases, highlighting a geographical variation in the inflationary trend.
December Traffic
Casual Dining started the first week of December down (-5.0%) and (-2.2%) on the 2-year, improving 150bps in the first week. Limited service was down (-4.6%) for the first week and back to +0.4% on the two year stack.
