Same-restaurant sales rose 6.2% at the steakhouse chain and 1.1% at the Italian chain in Darden's first quarter. The company is looking to imported beef to lower a cost that matters most to its faster-growing brand.
Darden Restaurants' first quarter was really two quarters. One chain carried the growth. The other held the profits.
At LongHorn Steakhouse, same-restaurant sales rose 6.2% in the fiscal first quarter. At Olive Garden, they rose 1.1%. The Fine Dining segment grew 1.6%, and the company's other brands 3.8%. Across the company, same-restaurant sales rose 3.1% and total sales 5.1% to $3.2 billion.
Olive Garden still produces the most money. It generated $1.33 billion of sales and $270.8 million of segment profit, a segment margin of about 20.4%. LongHorn produced $860.9 million of sales and $154.6 million of profit, about 18.0%. The faster-growing chain is the less profitable one, and it is the one most exposed to the price of beef.
That is why the company's comments on beef carry weight. Darden said it expects imports to bring down what it pays, after a steep climb in prices. Two policy shifts sit behind that view. The administration now lets more beef enter without tariffs, and beef from Mexico is flowing again now that a ban tied to New World screwworm, a livestock parasite, has been lifted.
For a company whose strongest brand is a steakhouse, the source of relief matters. If imports lower what Darden pays for beef while LongHorn keeps drawing more customers, the gap between the two chains' margins could narrow. If beef costs stay high, LongHorn's growth brings more sales at lower margins.
"The first quarter was a solid start to our fiscal year with each of our segments delivering positive same-restaurant sales," Chief Executive Rick Cardenas said.
The earnings total was in line. Darden earned $2.05 a share, up 4.1% from $1.97 on an adjusted basis a year earlier. It kept its full-year forecast for earnings of $11.10 to $11.35 a share rather than raising it, and it bought back about 1.1 million shares for $222.3 million, leaving $1.3 billion under its repurchase authorization. It declared a quarterly dividend of $1.62 a share, payable .
The shares fell on Thursday. Olive Garden's slower growth and the decision to hold the outlook rather than raise it stood out in a report that otherwise met expectations.
The second quarter will show which way the beef bet breaks. LongHorn's segment margin is the figure to watch. Growth near 6% with a margin holding around 18% would suggest the imports are arriving in time. Growth with a shrinking margin would suggest they are not.