Olive Garden beginning to bloom
March 20, 2015
by Monica Watrous
Olive Garden reports a significant increase in margins.
ORLANDO, Fla. — Olive Garden is on a roll.
The Italian casual dining chain posted its second consecutive quarter of positive same-restaurant sales for the first time since 2010, contributing to a 22 percent increase in net earnings for Darden Restaurants in the third quarter.
Additionally, improved labor efficiency and reduced marketing spend led to a significant increase in margins for the chain.
For the quarter ended Feb. 22, Darden earned $133.8 million, equal to $1.03 per share on the common stock, which was up 22 percent from $109.7 million, or 84 cents per share, in the prior-year period. Earnings were affected by tax benefits related to the disposition of an aquaculture investment, offset by impairments of excess land parcels held for sale and other strategic action costs associated with the evaluation of the company’s real estate portfolio. Sales rose 7 percent to $1.7 billion from $1.6 billion for the year-ago quarter.
Total sales grew 3 percent to $957 million for Olive Garden, 11 percent to $404 million for LongHorn Steakhouse, and 15 percent to $367 million for the Specialty Restaurant Group, which includes The Capital Grille, Yard House, Seasons 52, Bahama Breeze and Eddie V’s.
During the quarter, same-restaurant sales at Olive Garden rose 2.2 percent, which followed a 0.5 percent increase in the second quarter.
“As our guests look for more convenience, Olive Garden is working to meet them wherever they are and provide them the different experiences they want inside or outside of the restaurant,” said Gene Lee, CEO, during a March 20 earnings call with financial analysts. “A strong example of this evolution is our to-go sales, which continues to show strong improvement year-over-year with sales up 22 percent this quarter.”
Darden executives announced plans to remodel six more Olive Garden restaurants over the coming months.
“As we look forward, we will continue to refresh the Olive Garden brand,” Lee said. “Our recently remodeled restaurants are performing well, with mid- to high-single digit, same-restaurant sales increases.”
Looking ahead, Darden management expects fourth-quarter earnings per diluted share to increase between 69 percent and 74 percent over the year-ago quarter. Executives have raised expectations for full-year performance to project a 43 percent to 45 percent increase in adjusted earnings per diluted share over fiscal 2014, reflecting the impact of the accelerated share repurchase program on the company’s annual weighted average share count, as well as the expectation that combined US same-restaurant sales growth for the year will be between 2 percent and 2.5 percent and a positive impact of an extra operating week.