Earnings Deep Dive on a Small-Town Favorite $DRI

September 18, 2024

If you lived in a small (ish) city or town, chances are you're eating at a Darden restaurant if you're going out to eat with your family...espeically if you're celebrating a special occasion.

DRI is parent to staples like Olive Garden, Cheddar's, LongHorn Steakhouse, and even a handful of "fancy" restaurants like Ruth's Chris, Capital Grille, Eddie V's and Season's 52.

And it's growing its empire.

Darden is acquiring Chuy's (CHUY) -- another causal restaurant favorite in a "Tex-Mex" cuisine segment where it currently lacks exposure. Darden plans to close its acquisition in its second quarter, and will take operation of 101 restaurants in 15 states.

The web visit chart above should highlight WHY it's making this $605 million splurge -- Chuy's is leading digital growth vs. other Darden brands (we'll put an asterisk next to Steakhouses, like LongHorn, who are more of a destination than takeout target).

Darden faced headwinds over the last quarter or so from weaker than expected sales at Olive Garden and its fine dining restaurant segment -- right now, the consumer is stretched and cooking more at home, at least according to major retailers like Walmart.

But not all brands in Darden's portfolio are struggling.

Its LongHorn banner is outperforming, with same-store sales growth of +4% in Q4.

LongHorn has the highest consumer satisfaction rating of all casual restaurants surveyed in the last year. Consumers tout high levels of customer service (free birthday desserts) and high quality, fresh meals -- notably juicy burgers. Many users note they can get a delicious meal at LongHorn for less than they would spend at a fast-casual chain like Five Guys.

And the company is leveraging promotions to get consumers back in its other doors. DRI brought back Olive Garden's never ending pasta bowl in August for dine-in customers only.

We see significant signs of traction as consumers look for a bigger bang for their dining buck -- Olive Garden web visits are in the green, and consumers searches popped higher in August when the deal was announced.

Here's how we're playing earnings...

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