Key Points:
- Darden reported solid top- and bottom-line results that aligned with Advan’s observed figures.
- Olive Garden’s traffic is matching the better half of the industry (independent FS) and LongHorn is strongly outgrowing its benchmark. Management indicated that the consumer has largely been consistent.
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Darden reported solid top- and bottom-line results for its May-ended FQ4 period. Comp-sales results were more mixed. Olive Garden delivered a +2.4% comp-store sales increase, resulting in an improvement in its 2- and 3-yr CAGR. The contributions of traffic (+0.2%) and pricing (+3.0%) were partially offset (-0.8%) by its lighter portion menu innovations (positioning for GLP-1s and greater affordability). Observed traffic* of +0.8% was -60bps less QoQ and in line with the reported -40bps QoQ deceleration. The observed average check of +2.4% was in line with the reported figure. Traffic was right in line with the faster-growing full-service independents segment (a more demanding benchmark). Olive Garden is also focused on turning tables faster and the observed average dwell time at its locations (using Chili’s as the best-in-class benchmark) improved from 7.9% higher than Chili’s to only 6.4% higher. Said differently, Olive Garden drove check, traffic, and turns.
On the consumer, CEO Rick Cardenas said, “We really haven't seen a whole lot of change based on what we've been saying for the last couple of quarters. Consumer spending remains pretty resilient. Overall, the mood with consumers is still a little cautious. But as we've said a couple of times before, the weaker consumer sentiment hasn't necessarily translated into reduced spending. A little bit different this quarter, our casual brands saw an increase in visits year-over-year from all income groups, including the bottom quintile. Some of that might have been tax refunds, but they did see some increase year-over-year from all income groups. We did see a little softness in guests under 35, but we're going to continue to control what we control.”
As it relates to the higher-end of Darden’s portfolio, LongHorn delivered a very robust a +7.2% comp and the Fine Dining segment a more modest +2.1% comp. LongHorn’s stronger trend reflects, in our view, less in-market competition vs. the Fine Dining portfolio (Ruth’s Chris, The Capital Grill, Eddie V’s, etc.). Additionally, the FD brands are less “unique and special” than similarly price-positioned independent establishments, which inhibits their performance in the context of our view on the full-service segment.
Back to LongHorn’s outperformance, LongHorn’s observed traffic is outperforming Outback Steakhouse by 700bps. Why? comparing** Outback Steakhouse customer mix to LongHorn’s, shows a superior rural / suburban concentration, i.e. its positioning is connecting where competition is less. Why? Cardenas said, “There's probably some trade down [into LongHorn] from Fine Dining. There's also some trade-in from [from others] is what we think is happening.” Outback’s average check size is $74 vs. LongHorn’s $68. In Tampa, Outback charges $35 for an 8oz Filet Mignon vs. LongHorn’s $33 for 9oz. Outback's chicken is also notably more expensive (~$25 vs. ~$21).
On LongHorn’s outperformance, Cardenas said, “The guests know they're getting high-quality steak when they come to LongHorn. Our steaks will correctly scores are at highest ever levels. And they get a great value. And it doesn't hurt that there's a high beef inflation in the market. And so the relative value looks a little bit better for LongHorn. So -- and then specifically in Q4, we use a little social media that we do all the time, but we had a post that went very viral, and that was their tease on bringing back lamb. And so they do lamb usually in Q4. Their guests have been asking about it all year. All they did was tease and say, what you're looking for is coming. And then they sold more lamb -- we bought more lamb this year than last year, and we sold out in half the time.”
To corroborate Cardenas’ claim, we asked Claude which brand, Outback vs. LongHorn, was better, and its response is captured below. Reflective of those preferences, Advan’s observed unique customers (not visits) shows Outback down 2.0-3.5% per-location each month vs. Longhorn’s growing counts.
See presentation on recent industry trends here and our last report on Darden here.
* 3P delivery and catering create noise in our numbers vs. reported results.
‘** Advan + Spatial.ai segments visitors into 80 psychographic cohorts for any given period of time. Looking at changes in the cohorts between time periods allows one to see which cohorts are growing / holding flat / declining.
