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Darden's Profit Drops 16.4% Amidst Rising Costs

Darden Restaurants, which operates chains such as LongHorn Steakhouse and Capital Grille, reported sales of $2.45 billion for its fiscal first quarter, a 6.1% increase from the same period a year ago. This was just below the $2.47 billion that Wall Street analysts had been expecting.

September 22, 2022
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Darden Restaurants Inc. reported a 16.4% drop in quarterly profit, as higher sales at Olive Garden and the company's other restaurants failed to offset rising food and labor costs.

Darden Restaurants, which operates chains such as LongHorn Steakhouse and Capital Grille, reported sales of $2.45 billion for its fiscal first quarter, a 6.1% increase from the same period a year ago. This was just below the $2.47 billion that Wall Street analysts had been expecting.

Meanwhile, profit fell to $193 million from $230.9 million a year earlier. Costs rose nearly 9% during the quarter, with increases for food and beverages, labor, marketing and other restaurant expenses.

Rick Cardenas, the Chief Executive, said that the company is having difficulty dealing with high inflation and unstable macroeconomic conditions. Even so, it seems like consumers have gone back to their regular dining habits. "We saw more normal seasonality return to our business," he said.

The restaurant operator, based in Orlando, Fla., has been profitable throughout most of the pandemic and has seen increasing sales over the past year as customers' appetite for eating out has rebounded.

Darden has been facing pressure on its bottom line from rising costs for food, beverages and labor. The company has been hesitant to pass on these costs to customers in the form of price increases, hoping to protect the value proposition of its brands and avoid the sticker shock diners have been feeling elsewhere. However, Darden has been setting its price increases below the recent historic levels of inflation, which may not be sustainable in the long run.

Darden's same-store sales were up 4.2% across its chains, led by increases at its fine-dining establishments such as Eddie V's and the Capital Grille. Its biggest earner, Olive Garden, saw same-store sales gain 2.3%, while LongHorn Steakhouse reported a 4.2% increase.

Total sales increased by 34 net new restaurants compared to the same quarter last year. This boost in sales is attributed to the new restaurants that have opened up in the past year.

The results of a recent study show that more consumers are trying to save money by eating at home rather than at restaurants. This comes a day after General Mills Inc. posted a jump in sales.

Restaurants have been fighting the characterization that they are expensive. Executives for fast-food chains and sit-down restaurants have argued that eating out can offer customers a better value than cooking at home.

Grocery prices in the U.S. have seen a sharp increase in recent months, with the latest data from the Labor Department showing a 13.5% year-on-year jump in August. This is the steepest increase since March 1979, and far outpaces the 8% rise in prices for eating out.

Darden reported a profit per share of $1.56 for the period ended Aug. 28, which is down from $1.76 last year but in line with analyst expectations, according to FactSet.
Darden is sticking to its earlier forecast for the year, calling for same-store sales to increase by 4% to 6%.

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