Olive Garden, which was responsible for about half of Darden’s revenue in the second quarter, saw its own same-store sales increase by 3.5 percent. Raising prices on menu items like its popular Never Ending Pasta Bowl helped boost sales, despite declining traffic to the Italian restaurant chain.
“In our view, the quarter’s only blemish was Olive Garden’s traffic figure, down -0.8%, the segment’s first decline in more than a year, which modestly under-performed the casual dining industry,” Stifel analyst Chris O’Cull said in a note.
CEO Gene Lee placed the blame for the traffic decrease on the decision to reduce promotions.
“If we had the same incentive level as the prior level, we would have beat the industry,” Lee said on a conference call with analysts. “But we aren’t concerned about that, what we are concerned about is building a really healthy guest base.”
Lee said that while competitors are trying to increase their market share by upping their advertising budgets and pricing promotions aggressively, Olive Garden is trying to take advantage of the strong consumer environment. He added that Olive Garden will not change its promotional strategy as long as it meets its same-store sales in the latter half of the year.
Darden reported fiscal second-quarter net income of $115.6 million, or 92 cents per share, up from $84.7 million, or 67 cents per share, a year earlier.
Excluding items, Darden earned $135.3 million, or 92 cents per share, from continuing operations, topping the 91 cents per share expected by analysts surveyed by Refinitiv.
Net sales rose 4.9 percent to $1.97 billion, missing expectations of $1.98 billion.
The restaurant company raised its full-year forecast, saying it now expects to earn between $5.60 and $5.70 per share for the fiscal year and to see same-store sales growth of 2.5 percent. Those numbers largely match analysts’ estimates of same-store sales growth of 2.5 percent and earnings of $5.65 per share.
Last quarter, Darden said it expected same-store sales to increase within a range of 2.0 percent to 2.5 percent. It also said it expected to earn $5.52 to $5.65 per share for the year.
Darden shares were up 3.65 percent in Tuesday’s premarket. They are up nearly 3 percent since the start of the year, putting the restaurant operator’s market value at $12.3 billion.