Darden Restaurants, Inc. (NYSE:DRI) Q3 2024 Earnings Call Transcript

Rick Cardenas: Yes. I would say, first of all, our guidance contemplates everything we know about March. I don’t want to get into March. We have a lot of challenges forecasting three weeks in the month, when you’ve got spring break shifts and those kind of things happen. And so we’re going to continue to watch. I think I’ve read a little bit on tax returns being a little bit delayed. But we’re not going to read too much into that. Our — we improved our gap between January and February. And so that’s what we feel good about. We’re not going to talk about March yet.

Operator: Thank you. Next question is coming from Jeff Farmer from Gordon Haskett. Your line is now live.

Jeff Farmer: Great. Thanks. Just following up on Jeff’s question there. So again, you had made some reference to the lower income consumer, but in terms of thinking about just maybe a little bit softer trends than you had expected. How much of that would you put at the feet of the lower income consumer as opposed to the balance of potential drivers?

Rick Cardenas: Yes, I would say that if you think about our results being a little bit softer than we thought, I would put it more at the feet at the lower end and the higher end. Our higher-end consumer was up versus last year. So that would tell you that it was really more on the lower end consumer. But as I think about what the consumer trends are, I just want to remind everybody that we believe that operators that can deliver on their brand promise with value can continue to appeal consumers despite economic challenges. And that’s what we’re going to continue to focus on doing. I remain confident that we’re well positioned and prepared for whatever we have to deal with. Thanks to the breadth of those nine brands that Jeff talked about, the strategic decision we made to price well below inflation and CPI over the last four years and those outstanding team members we have in our restaurants who are committed to create exceptional guest experiences for our guests.

And so yes, the lower end consumer probably drove a little bit more of our miss to what we thought when we talked to you before, but we’re going to continue to focus on what we do and take care of every guest that walks in the door at the best that we can to have them to come back.

Jeffrey Farmer: And then the second question, you just touched on, you gave me a pretty good segue there. But in terms of your more conservative pricing strategy relative to your peers, from what you’ve seen, has that driven traffic outperformance, market share outperformance? Is that strategy actually pay dividends to these customers, casual dining customers, appreciate that the Darden brand portfolio is actually a better price value than a lot of other concepts from what you’ve seen?

Rick Cardenas: Yes, Jeff. I think if you look at our gap over two years, our gap to the industry, as I said, being almost 1,000 basis points — I’m sorry, yes, 10% gap over the three years. It’s been strong. And that’s what we do. We’re taking this price below inflation, having a great everyday value. And we think over the long term, that continues to build the value differential we have. We’ve got value leaders across and that helps build the traffic gap.

Jeffrey Farmer: All right, thank you.

Operator: Thank you. Next question today is coming from Andrew Strelzik from BMO Capital Markets. Your line is now live.

Andrew Strelzik: Hey, good morning, thanks for taking the question. I wanted to ask about industry capacity, particularly given what you’re talking about with more challenged kind of traffic backdrop. And I think initially, during COVID, Darden talked about maybe a 10% decline in locations because of closures. And it feels like from a lot of the public companies we hear from, there’s a desire to accelerate unit growth or has been. And I’m not exactly sure what’s going on, on the independent side. So I guess I’m just curious, if you have a sense where capacity is now versus that 10% reduction? Are you seeing it come back in any of your markets or any specific regions? And maybe if you could touch on the independent side as well? Thanks.

Raj Vennam: Andrew, I think we’re still in that ballpark of 10%-plus. But if you actually look at the last year or so, there have been more closures than openings from the data we’ve seen. So net, there’s net closings even in the last nine, 12 months data that we’re looking at. When you think about the environment today, with all the regulation around where things are, it’s very hard for someone to open a new restaurant. The financing costs have gone up. There is less developments happening, that’s actually part of the reason we talked about some growth being constrained a little bit in the near term for us on the unit opening. So we would say it’s not that different. It has not gotten much better. Maybe let’s put it that way.

Andrew Strelzik: Okay, great. And then maybe on your unit growth, expectations for next year. Just curious where we should expect a few openings to come from, I guess, does it just match based on the size of the portfolio or any of the brands in particular? Thanks.

Raj Vennam: Yes. I would say, assume that two-thirds of the growth is going to be coming from Olive Garden and LongHorn combined, and then the rest is — one-third is from all the other brands. I don’t know that we would say there’s a huge difference year-over-year. It’s a little bit of a change. But as we look forward, as Rick said, we’ll continue to try to get that ramped up further.

Operator: Thank you. Next question is coming from John Ivankoe from JPMorgan. Your line is now live.