Olive Garden owner Darden Restaurants (DRI 104.39, +5.50, +5.6%)
stands higher on Tuesday after raising its fiscal 2019 earnings and
comparable sales guidance in part due to its mixed second quarter performance.
This morning, the restaurant operator announced second quarter earnings from continuing operations that came in slightly ahead of market expectations at $0.92. Sales increased 4.9% to $1.97 bln owing to strength across all major brands as blended same-restaurant sales grew 2.1%.
What’s more, restaurant-level EBITDA margins expanded 40 basis points to 16.7% of sales in the quarter. Food and beverage costs were favorable by 40 basis points, offset by a 50-basis point drag from labor. Management expects minimal inflation on the food and beverage line going forward, ticking up slightly in the back half of the year as the deleverage of labor moderates.
By brand, same-restaurant sales were strongest at Olive Garden (+3.5%), LongHorn Steakhouse (+2.9%), and The Capital Grille (+3.7%). In contrast, Cheddar’s Scratch Kitchen (-4.0%), Yard House (1.1%), and Bahama Breeze (-1.1%) continued to struggle.
At the largest brand, Olive Garden, sales grew 4.9% to $998.1 mln in the quarter on 3.5% same-restaurant sales growth. Average check increased 4.3% in the quarter, driven by a 1.9% increase to pricing and 2.4% growth in menu-mix. Menu-mix was driven primarily by shifts in consumer preference and, to a lesser extent, a price increase for Never Ending Pasta Bowl and reduction incentives. What’s more, Olive Garden's off-premise business grew 10.3% and represented 14.6% of total sales for the quarter.
LongHorn Steakhouse also put in a solid quarter with sales growth of 6.4% to $412.6 mln on 2.9% same-restaurant sales growth. Sales at Cheddar’s Scratch Kitchen were down 1.4% in the quarter driven by a 4.0% same-restaurant sales decline, partially offset by sales growth in new restaurants of 2.6%.
In conjunction with this morning’s release, Darden also raised its expectations for fiscal 2019 earnings. Specifically, Darden now sees FY19 EPS between $5.60-5.70 from its prior expectations for $5.52-5.65. The company also upped its 2019 same-restaurant sales growth outlook to approximately 2.5% from the prior range of 2-2.5%.
DRI shares were down 4.17% yesterday, crossing below the 200-day simple moving average (102.72). After yesterday’s rout in the broader market and a subsequent sell-off in DRI stock, shares opened around the 200-day SMA this morning and currently approach session highs again.
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