Click here to access DRI's earnings press release.
DRI generated EPS of $1.76, beating the $1.73 consensus, extending its winning streak vs. analysts' expectations to seven consecutive quarters.
The company has focused on improving the in-restaurant experience, providing everyday value on its menu, and simplifying operations rather than relying on incentives to drive traffic. This has enabled it to post positive same-restaurant sales growth for its core Olive Garden brand (over half of total sales) for 18 straight quarters due to favorable pricing.
However, this quarter, its blended same restaurant sales growth slipped to +2.5% compared to +2.8% last quarter as growth at Olive Garden slid to +3.9% vs. +5.3%.
Pricing at Olive Garden remained a positive, up 1.6% in the quarter, but traffic declined by 0.4%. During the earnings call this morning, its CEO, Gene Lee, was asked what caused the dip and whether the business climate has softened.
On the positive side, he commented that its market share gap vs. its competitors has increased as its sale restaurant sales growth at Olive Garden outpaced the industry by 270 bps.
Mr. Lee acknowledged that there is some softness in the casual dining industry and that the general environment has become more volatile. As a result, DRI is seeing a modest slowdown in discretionary spending, causing it to take a more cautious approach with its FY20 guidance.
Specifically, the company is forecasting same restaurant sales growth of 1-2% compared to its +2.5% performance in FY19 and EPS of $6.30-$6.45 vs. the $6.46 consensus. DRI doesn't expect operating costs to change substantially this year, although there will be a meaningful change in terms of its tax rate which will negatively impact EPS.
Another key topic in the restaurant industry is delivery and the digital channel. DRI has opted not to use delivery services like Uber Eats or Door Dash commenting that the results of its research aren't compelling enough to go that route. While delivery may add some incremental sales, the company believes it would come at the expense of margins.
Instead, DRI remains focused on improving the in-restaurant experience, which it believes will lead to demand for off-premise (pick-up). For the quarter, its digital business grew 9% and represented 14% of total sales for Olive Garden.
Key Takeaways: DRI continues to execute well, evidenced by another earnings beat, and it continues to generate plenty of cash ($1.3 bln in FY19). This strong cash flow generation allowed it to bump its quarterly dividend higher by 17% to $0.88/share.
Its solid performance has been driven by its strategy to simplify operations while improving the guest experience through everyday value menu options and improved service.
The casual dining industry is experiencing some softness though as consumers have pulled-back on discretionary spending. This hurt DRI's traffic and caused it to be more conservative with its FY20 guidance.