- Stock for Darden Restaurants, which owns Olive Garden and Longhorn’s Steakhouse, neared a 52-week high on Thursday. Investors were able to look past a lackluster quarter because the company said it wasn’t affected by declines in consumer confidence.
How does a restaurant conglomerate that relies on customers’ discretionary income earn a minor stock rally during a period of declining consumer confidence? By showing Wall Street that while consumers might be worried, they’re still hungry.
Darden Restaurants, the parent company of popular chains like Olive Garden and LongHorn Steakhouse, saw its stock pop as much as 7% on Thursday after executives said during its third-quarter earnings call it had, so far, been impervious to mounting consumer fears. Any worries about an impending economic downturn weren’t stopping customers from going out to eat.
“Even if people say they’re feeling less optimistic, we haven’t seen a huge correlation between that and dining out,” Darden CEO Rick Cardenas said during the earnings call. “So changes in consumer sentiment haven’t necessarily translated to material changes in consumer spending.”
In fact, Cardenas said he expected eating out to be relatively resistant to any economic anxieties.
“Dining out is the number one category where people treat themselves and splurge,” he said.
Investors were so pleased with Darden’s prediction that consumers would keep spending at its restaurants that they overlooked a quarter that failed to meet Wall Street’s growth expectations. Across all of its brands, Darden grew same store sales 0.7%, when investors expected them to grow 1.7%. Darden’s revenue for the quarter was up 6.2% for a total of $3.2 billion. Most of that growth came on the back of its acquisition of Chuy’s, an Austin-based Tex-mex chain.
However, it was Darden’s bright forecast that powered the stock on Thursday, which at one point throughout the day was just 15 cents from its 52-week high. The company said next quarter it expected same-store sales to grow 3%. Darden CFO Raj Veenam said the company didn’t expect its operating margin to grow “materially” alongside same-store sales.
Darden declined to provide further comment to Coins2Day.
Darden executives said they preferred to keep an eye on inflation levels rather than consumer confidence. For Darden, the priority was that incomes continued to outpace inflation, according to Cardenas. If the rate of inflation comes down and essential goods like groceries, gas, and housing cost less, then people would have more money for things like endless pasta and T-bone steaks.
“It’s giving people a little bit more disposable income and they may be choosing to spend it on dining out versus buying a good,” Cardenas said.
