You Just Can’t Keep Olive Garden Down
(Bloomberg Opinion) -- Sometimes I can’t help but feel a measure of pity for struggling sit-down dining chains such as Brinker International Inc.’s Chili’s or Bloomin’ Brand’s Inc.’s Carrabba’s Italian Grill. After all, restaurant traffic has been soft industrywide, and the rise of fast-casual eateries and digital-enabled delivery have made for difficult conditions for sit-down chains.
And then Darden Restaurants Inc. reports quarterly earnings, and I don’t feel so sympathetic. The parent company of Olive Garden consistently shows it is possible — even in this deeply challenged format — to ride consumers’ upbeat outlook to comparable sales growth, increased foot traffic and higher profit.
Darden reported on Thursday that Olive Garden recorded a robust 5.3 percent increase in comparable sales in the first quarter over a year earlier, making for its 16th consecutive quarter of growth on this measure. The increase was driven not just by higher prices, but also by a 1.5 percent rise in visits over a year earlier.
But it has been rigorous about getting the basics right. It has gone from running nine major promotions a year to just six, which executives say helps trim supply-chain costs and also cuts down on training time for workers. It has decluttered its menu and has put marketing muscle behind its lunch business so as to play better defense against fast-casual insurgents.
You might say Darden’s shares have become carbo-loaded as it has steadily turned around its flagship business. Its stock has soared more than 172 percent in the roughly four years since activist investor Starboard Value gave it a loud wake-up call.
And yet I don’t think investors have gotten ahead of themselves. The company just bumped up its full-year sales and earnings guidance. And Darden has begun using similar tactics at its Longhorn Steakhouse chain, which accounted for about 21 percent of its revenue in the latest fiscal year. There is potential to fix and expand Cheddar’s Scratch Kitchen, the chain it acquired in 2017 for $780 million. That means growth is still on the menu for Darden, even several years into a surprising turnaround.
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Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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