Financial Performance

Darden Earnings Beat On Olive Garden Sales Gain

Darden's "back to the basics" strategy boosted its Olive Garden brand but Cheddar's Scratch Kitchen continues to struggle.
Matthew HellerDecember 19, 2018
Darden Earnings Beat On Olive Garden Sales Gain

Darden Restaurants reported better-than-expected earnings on Tuesday as strong sales at its Olive Garden chain offset the continued sluggishness of newly-acquired Cheddar’s Scratch Kitchen.

Darden’s overall revenue increased 4.9% to $1.97 billion in the second quarter, driven by the addition of 40 net new restaurants and a blended same-store sales gain of 2.1%. Analysts expected revenue of $1.98 billion and a comp sales increase of 2%.

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The casual dining company earned $135.3 million, or 92 cents per share, from continuing operations, topping estimates of 91 cents per share.

Olive Garden was responsible for about half of Darden’s revenue in the second quarter, with the brand’s same-store sales increasing by 3.5%.

“We had another quarter of strong and steady performance by continuing to focus on being brilliant with the basics in our restaurants,” Darden CEO Gene Lee said in a news release. “We continued to grow market share profitably by strengthening and leveraging our competitive advantages, and our brands are making the appropriate investments while managing costs effectively.”

In trading Tuesday, Darden shares rose 5% to $103.85.

As the Orlando Sentinel reports, Lee’s “back to basics” philosophy led to success during the past four years at Olive Garden. In the second quarter, higher prices on menu items like the popular Never Ending Pasta Bowl helped boost sales, despite a 0.8% decline in traffic.

Lee blamed the traffic drop on reduced promotions. “We aren’t concerned about that, what we are concerned about is building a really healthy guest base,” he told analysts in a conference call.

The performance of Cheddar’s may be more of a concern. The Texas-based chain, which Darden acquired for $780 million in March 2017, posted a 4% decline in same-store sales for the quarter as it continued working through staffing issues.

“They’ve had all this change to ownership and systems [at Cheddar’s], and on top of that, it’s very difficult to find employees” in the current labor market, John Gordon, a restaurant consultant with Pacific Management Consulting Group, told the Sentinel.