Darden Restaurants (DRI.N), owner of the Olive Garden chain, on Thursday forecast annual profit largely below Wall Street estimates, and predicted that beef and produce costs will cut into margins while visits to its higher end chains will slow.
Shares fell 1.3% in a broadly negative market.
Orlando, Florida-based Darden said it expects full-year profit between $8.55 per share and $8.85 per share. The mid-point is below analysts’ average estimate of $8.78 per share, Refinitiv data shows.
The company forecast same-store sales to grow in the range of 2.5% to 3.5%, compared with 2.69% growth estimates.
Menu prices are expected to increase by 3.5% to 4%, meaning that traffic will likely be flat to 1.5% lower for Darden’s fiscal 2024, Raj Vennam, Chief Financial Officer, said during an earnings call.
At fine-dining chains The Capital Grille and Eddie V’s, results were tepid partly because of comparisons with last year when customers rushed out to celebrate after the Omicron COVID-19 variant waned.
But Vennam said customers were buying fewer alcoholic beverages and fine dining sales fell versus last year among lower-income and younger customers. They were about flat for those in higher income and older groups.
“I think there might be some price sensitivity in consumers overall … GDP has continued to tick down. And that would mean that traffic would tick down everywhere,” CEO Ricardo Cardenas said during the call.
Full-service restaurants, such as Darden and rival Texas Roadhouse (TXRH.O) have conceded market share to fast-food chains.
For Darden’s fourth quarter ended May 28, same-store sales grew 7.1% at LongHorn Steakhouse and 4.4% at Olive Garden.
Labor inflation of about 6% in the quarter cut into margins but helped increase employee retention and improve service, with merit increases above industry levels, Vennam said.
“There’s a tension between what people want and what they can afford. And even in a slowing economy, consumers really continue to seek value,” Cardenas said. “It’s not always about low prices. It’s about execution, it’s about what they experience they get in the restaurants.”