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Darden Restaurants Sees Traffic Struggles at Olive Garden

By Demitri Kalogeropoulos – Sep 20, 2019 at 9:13AM

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But the dining giant still sees a path toward higher sales and profits in fiscal 2020.

Investors were optimistic heading into Darden Restaurants(DRI 2.00%) first-quarter report, given that the full-service dining specialist had predicted another year of market-share gains ahead for fiscal 2020. The owner of the Olive Garden and LongHorn Steakhouse franchises is also planning to speed up its pace of new restaurant launches while boosting profitability this year.

On Thursday, the chain delivered on most of those high expectations but revealed pockets of sluggishness in a few important areas of the business.

Here's a look at how the latest results stacked up against the prior-year period. 


Q1 2019

Q1 2018



$2.13 billion

$2.06 billion


Net income

$171 million

$166 billion


Earnings per share




Data source: Darden's financial filings.

What happened this quarter?

As expected, Darden's sales growth pace decelerated slightly compared to the prior quarter's surge. But the chain still managed to win market share in its competitive niche. Modest expense spending, meanwhile, helped push profitability up to keep the company on track to meet its wider 2020 earnings targets.  

Chefs working in a kitchen

Image source: Getty Images.

Highlights of the quarter include:

  • Sales at existing locations, or comps, rose by 0.9% as compared to 1.6% last quarter and 2.5% for the prior 12 months. Comps improved in both the core Olive Garden and LongHorn SteakHouse brands, but reduced results point to an unmistakable slowing growth trend in an overall flat industry.
  • Darden again relied on higher menu pricing to deliver almost all of its comp sales gains, with customer traffic holding flat at LongHorn and slipping into negative territory at Olive Garden.
  • The addition of 40 new restaurants in the store footprint helped push overall sales higher by 3.5%.
  • Restaurant-level margins improved as the company held the line on expenses like marketing, labor, and food.
  • Darden announced a new stock repurchase plan authorizing up to $500 million of buyback spending. Executives spent $95 million on share repurchases during the quarter.

What management had to say

CEO Gene Lee and his team said the latest operating trends met their high expectations. "I'm pleased with our results this quarter as we continued to gain market share," Lee said in a press release. "Our teams remained focused on improving the guest experience ... and leveraging our competitive advantages, all while managing costs effectively," he continued.

Looking forward

Executives are still predicting that sales gains will come more from their new store launches than from rising revenue at existing locations. Overall sales growth should land at 2%, they affirmed, thanks to 44 restaurant openings compared to 39 last year. Comps are still predicted to rise by between 1% and 2% to mark a slowdown from last year's 2.5% increase.

Investors keeping track will remember that the company had a similar outlook at this time in fiscal 2019 but went on to comfortably surpass management's sales targets. Whether it repeats that result this year will depend mainly on Darden's ability to stabilize guest traffic at Olive Garden and LongHorn. But for now, shareholders are likely happy to see the company continue stealing market share as the full-service restaurant industry plugs along at near zero growth.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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