Higher prices give Olive Garden sales a boost
NEW YORK - Olive Garden's sales edged up in the latest quarter, as the Italian restaurant chain known for its free breadsticks lifted prices and customers spent a little more per visit.
The chain's sales rose 1 percent at established locations from a year ago, according to parent company Darden Restaurants Inc. (DRI). When comparing calendar periods rather than fiscal quarters, Darden said both spending and traffic were up.
During a conference call with analysts, Darden CEO Gene Lee said one of the big changes at Olive Garden has been the addition of a prominent value deal on the menu. At dinner, that is an option that lets people mix-and-match pastas and sauces for $9.99. Lee noted that more than half of people who get it add on a protein, which brings the price up to $12.99.
Over time, Lee said Olive Garden is working on improving the restaurant experience so it can more easily command higher prices.
"We're focused on value, not just price," Lee said.
He noted the chain's longstanding practice of giving breadsticks and soup or salad with meals already puts it ahead of competitors.
Olive Garden, which has been struggling to hold onto customers in recent years, said profit also rose 12 percent for the three-month period ending Nov. 29. The improved results come after activist investor Starboard Value took over Darden last year and has overseen cost-cutting and operational changes.
Before taking over, one of Starboard's many criticisms had been Olive Garden's lack of discipline in doling out free breadsticks, which it said led to waste. Lee has also said the company has been examining all costs more carefully -- including how often restaurants clean carpets.
When taking into account Darden's other chains, including The Capital Grille and LongHorn Steakhouse, overall sales rose 1.6 percent at established locations for the latest period. The company, based in Orlando, Florida, said it now expects that figure to rise between 2.5 and 3 percent for the full fiscal year.
Previously, it had forecast an increase of 2 to 2.5 percent.
Darden also raised its adjusted earnings outlook to $3.25 to $3.35 per share, up from $3.15 to $3.30 per share.
Olive Garden, which accounts for more than half company's 1,500 restaurants, is also seeing an increase in to-go orders, the company noted. Lee said Darden is waiting to see which third-party delivery service emerges as a dominant player before striking any partnership deals on a national level.
For the quarter, Darden earned $43.2 million, or 33 cents per share, compared to a loss in the year-ago period. Earnings, adjusted for one-time items, came to 54 cents per share, topping the 42 cents per share analysts expected.
Revenue was $1.61 billion, which fell short of $1.63 billion Wall Street expected, according to Zacks Investment Research.
Shares of Darden were up 6 percent at $61.99.