Olive Garden parent's stock rises as profit beat overshadows muted outlook

By Emily Bary and Ciara Linnane

Darden Restaurants says, despite weakening conditions, the company 'had a strong year'

Darden Restaurants Inc., the parent of Olive Garden and Ruth's Chris Steakhouse, beat on profit for the latest quarter while delivering a full-year sales forecast that was below the consensus view at the midpoint.

Shares (DRI) rose 1.6% early Thursday.

The company logged fiscal fourth-quarter net income of $308.1 million or $2.58 a share from continuing operations, compared with $315.1 million, or $2.58 a share, in the year-earlier period.

On an adjusted basis, Darden earned $2.65 a share from continuing operations, while analysts tracked by FactSet were expecting $2.61 a share.

Overall sales rose 6.8% to $2.96 billion, roughly flat with the consensus view.

Same-restaurant sales were flat on a total-company basis, ticking 4% higher at LongHorn Steakhouse but falling 1.5% at Olive Garden, 2.6% for overall fine dining and 1.1% at other businesses.

"We had a strong year by staying disciplined, being brilliant with the basics, and controlling what we could control," Chief Executive Rick Cardenas said in a release. "This enabled us to exceed the high end of the EPS range we provided at the beginning of the fiscal year despite weakening conditions that emerged in the back half of the year."

On a call with analysts, Cardenas highlighted the extra pressure on consumers below the median household income of about $75,000 a year.

"Consumers are generally concerned about inflation, and they're becoming more concerned about the job market," he said, according to a FactSet transcript. "And what we're seeing are some behavior shifts that we had already started to see.

"So for Q4, transactions from households with incomes below the median were lower than last year. And that's more pronounced with consumers below $50,000 in income. And these impacts were even greater in our Fine Dining brands," he said.

Still, consumers are not "managing their check" in the same way they were in previous quarters, he said.

TD Cowen said the numbers included fodder for the bulls and the bears. EPS "was virtually in line, as an Olive Garden same-store sales miss was offset by better-than-expected LongHorn same-store sales and tight cost control," said analysts led by Andrew Mc. Charles.

For fiscal 2025, Darden expects $11.8 billion to $11.9 billion in total sales, along with 1.0% to 2.0% growth in same-restaurant sales. Analysts were modeling $11.94 billion in sales and 1.9% growth in same-restaurant sales for fiscal 2025.

The company is expecting EPS to range from $9.40 to $9.60, while FactSet is expecting $9.52.

"We are pleased that 2025 is expected to be an on-algorithm year with 10%+ TSR (total shareholder return), with a higher EPS guidance range than feared," said the Cowen analysts, who have a buy rating on Darden's stock.

The stock has fallen 7.5% in the year to date, while the S&P 500 SPX has gained 15%.

-Emily Bary -Ciara Linnane

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06-20-24 1038ET

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