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Darden CEO has a 'hard time' blaming low grocery prices for empty restaurants

The Olive Garden Darden Restaurants
Adam Jeffery | CNBC

Cheaper grocery prices have been a recent scapegoat to explain why consumers are spending less money at restaurants, but don't expect Darden Restaurants' CEO to agree.

"I just have a hard time, when you think about our brands, that people are trading out and staying home because they can get their groceries a little bit cheaper," Gene Lee, CEO of Darden Restaurants, told investors during a conference call Tuesday. "I'm just having a hard time with that."

Major restaurant chains McDonald's, Dunkin' Brands, Wendy's and Starbucks all reported weaker-than-expected same-store sales growth last earnings cycle. At the time, many cited competition with grocery stores and meal delivery programs, higher menu prices and the election as major headwinds for sales growth.

On Tuesday, Darden, one of the first restaurant chains to report earnings in the latest period, said fiscal first-quarter earnings topped Wall Street's expectations as same-store sales growth rose 1.3 percent.

Despite the upbeat performance, Darden's CEO noted that there is a lot of uncertainty in the near term as competition remains fierce.

"The consumer environment continues to be difficult," he said, "There are a lot of choices that consumers have for their discretionary income."

Darden's Eddie V's and The Capital Grill brands saw same-store sales drop, but Olive Garden's same-store sales were up 2 percent.

Lee attributed the Italian restaurant's success to Darden's investment in consumer experiences over the last two years — improving food, value and service.

Darden hopes to continue to tap into consumers' desire for convenience, noting that the company has momentum in the catering and delivery spaces. Lee said that Darden is looking into third-party delivery services, but declined to comment further about the company's plans.

"Thanks to good cost control, and some lower food input prices, Darden has managed to translate its meager sales uplifts into healthy profit growth." Neil Saunders, CEO of Conlumino, said in a statement. "Darden isn't immune from wider trends, however we believe it will continue to buck them in the quarters ahead."