A nice meal at a restaurant is one of life’s simple pleasures. But today, consumers appear to be holding off on the everyday occasion.
Darden Restaurants Inc., owner of Olive Garden, is seeing the results firsthand.
“The lower income consumer does appear to be pulling back,” Rick Cardenas, Darden’s chief executive officer, told investors during the company’s latest earnings call. Which is in part due to unfavorable weather conditions earlier in the year and elevated inflation, he added.
The restaurant company’s stock plummeted by 11% during afternoon trading hours on Thursday after it reported its third quarter earnings.
Moreover, Darden missed Wall Street’s revenue expectations but met earnings per share estimates.
For the quarter, Darden reported revenue of $2.97 billion, about $2.62 earnings per share after excluding items. Analysts had expected the company to generate $3.03 billion, about $2.62 earnings per share.
Florida-based Darden may have missed revenue expectations, but reported an increase in sales, fueled by its acquisitions of 79 Ruth’s Chris Steak Houses and 53 new restaurants. Only LongHorn Steakhouse saw growth in same-store sales, the company said.
Cardenas said what Darden now sees is that “the mix of guests based on income is now in line with pre-COVID.”
Lower income consumers, those making less than $50,000 annually, have pulled back from spending at restaurants, he said. Those making $75,000 a year have also held off. Meanwhile, households making more than $150,000 have been spending more.
Raj Vennam, Darden’s chief financial officer, said the gap is in part being driven by older customers, “especially 65 plus,” who are “managing the check a little bit more.”
The company, which also owns Bahama Breeze and Cheddar’s Scratch Kitchen, updated its fiscal 2024 financial outlook.
The company expects sales for the fourth quarter to be approximately $11.4 billion, with restaurant sales growth of 1.5% to 2% and adjusted earnings per share to be $8.80 to $8.90. Darden said it also plans to open 50 to 55 new restaurants during the period.