Olive Garden's promotions and menu upgrades are paying off for parent company Darden Restaurants, which raised its fiscal 2019 outlook on Thursday and beat analysts' earnings estimates.
Shares of the company rose 5 percent in morning trading. Darden's stock, which has a market value of $14.14 billion, is up more than 22 percent over the last year.
Olive Garden, which accounts for roughly half of its revenue, saw same-store sales growth of 4.3 percent, largely due to menu mix. CEO Gene Lee told analysts on the conference call that customers reacted positively to its promotions and its chicken alfredo entree. The restaurant had record-breaking sales profit for the month of December, thanks to its Oven Baked Pastas and Never Ending Pasta menu items. Other menu improvements, like changes to its wine offerings, are also resulting in higher checks.
Olive Garden has also been focusing on its off-premise business. For example, on Valentine's Day, off-premise dining jumped by 20 percent compared to the same day last year.
"Our strong top-line results exceeded the industry this quarter resulting in significant market share gains," Lee said in a statement.
Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: $1.80, adjusted, vs. $1.75 expected
- Revenue: $2.25 billion vs. $2.24 billion expected
- Same-store sales growth: 2.8 percent vs. 2.2 percent expected
Excluding items, Darden earned $1.80 per share, beating the $1.75 per share expected by analysts surveyed by Refinitiv. Helping its bottom line were the results of improving labor performance in its new restaurants and overall labor productivity.
With one quarter left in fiscal 2019, the company raised its full-year outlook. It now expects total sales growth of 5.5 percent, on the high end of the prior range of 5.0 percent to 5.5 percent. Darden also raised its earnings per share to a range of $5.76 to $5.80 from a prior outlook of $5.60 to $5.70 per share.
"I think that the consumer is really strong at this point," Lee said, citing the restaurant industry's 3 percent growth.
Net sales rose 5.5 percent during the third quarter to $2.25 billion, topping expectations of $2.24 billion.
Overall, the Orlando-based company reported same-store sales growth of 2.8 percent, topping estimates of 2.2 percent. Executives said that Darden also outpaced industry same-store sales growth of 0.8 percent.
LongHorn Steakhouse, which makes up roughly a fifth of the company's sales, reported same-store sales growth of 3.8 percent, topping Wall Street estimates of 3.0 percent.
Cheddar's Scratch Kitchen, Yard House, Seasons 52 and Bahama Breeze all saw same-store sales decline during the quarter ended Feb. 24.
The company reported fiscal third-quarter net income of $223.6 million, or $1.79 per share, up from $217.8 million, or $1.73 per share, a year earlier.
Darden opened 29 net new stores during the quarter.
The company also released preliminary fiscal 2020 outlook. It plans to open about 50 stores, spending between $240 million to $265 million. It also plans to spend between $210 million and $235 million on restaurant remodels, maintenance, technology and other capital expenditures.
Fiscal 2020 will include 53 weeks, which the company expects will positively affect its earnings per share by 15 cents. The extra week will help offset the negative 5-cent impact of changes to how Darden's accounting of its leases.
Investors should not expect the company to announce an addition to its portfolio any time soon. Lee said that Darden does not need an acquisition in the foreseeable future to achieve its goals.