Darden Restaurant Sales Grow Despite Fine Dining Pullback

Darden Restaurants’ sales climbed this quarter despite diners shying away from its fine-dining establishments.

The company, owner of chains such as Olive Garden and LongHorn Steakhouse, released earnings Thursday (Dec. 19) that showed total sales increasing 6% to $2.9 billion.

While sales were up 7.5% at LongHorn and 2% for Olive Garden, sales for the company’s fine dining restaurants — Ruth’s Chris Steak House, Eddie V’s Prime Seafood and The Capital Grille — fell by nearly 6% for the quarter.

CEO Rick Cardenas discussed this issue and the larger dining environment during Thursday’s earnings call after Sara Senatore of Bank of America asked whether Darden was seeing diners trade down from its fine dining restaurants to its more casual eateries.

“First of all, it looks like the consumer is starting to feel a little bit better than they were in prior quarters,” Cardenas said.

“Our external research shows that consumer sentiment is trending positive. And there’s a little bit of a feeling of optimism out there by the belief the labor market will improve,” he said.

Compared to past quarters, he said, Darden is seeing growth in visits from customers who make between $50,000 and $100,000 a year, who tend to patronize its casual dining brands.

“We’re not seeing as much of an increase in visits yet on the consumers [whose incomes are] above that,” he said.

“And so, you know, the other thing in fine dining … just like we’ve said in the past, it appears that consumers who are splurging on fine dining” are in the higher income levels, while those who earn less “have continued to pull back,” Cardenas said.

This pull-back is happening at a tough time for the restaurant sector, where bankruptcies are at their highest level in years.

And while big name chains are seeing sales decline, smaller restaurants are dealing with difficulties of their own, like raising capital, Mitchell Hipp, divisional vice president at Rewards Network, said in a recent interview with PYMNTS.

“Most restaurants are undercapitalized to begin with, and it’s the No. 1 business that fails in the U.S.,” he said.

Most smaller restaurants only have enough funding to stay open for six months, although ideally, they should have the capital to operate for a few years.

“Six months goes by quickly when you open up a smaller restaurant. Unless people are flocking through the doors, it almost immediately becomes a situation where [owners] are chasing their tails from day one,” Hipp said.