Darden shares fall as CEO announces plans to retire; Olive Garden parent raises forecast despite planned wage hike

Darden Restaurants on Friday reported quarterly earnings and revenue that topped analysts’ expectations, leading the company to raise its sales and earnings forecast for the rest of fiscal 2022.

The Olive Garden parent also announced that CEO Gene Lee will retire May 29. The board elected Chief Operating Officer Rick Cardenas as its next chief executive. Cardenas, who previously served as chief financial officer, will join the board on May 30. Lee will stick around as executive chairman until the next shareholder vote, when he is expected to be reelected as non-executive chairman.

Lee has served as CEO since February 2015. He joined Darden in 2007 as part of the company’s acquisition of Rare Hospitality International. Cardenas has worked for Darden even longer, starting in 1984 as an hourly worker before becoming an auditor for the company and working his way up.

Shares of the company fell more than 3% in morning trading.

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

• Earnings per share: $1.48 vs. $1.43 expected
• Revenue: $2.27 billion vs. $2.23 billion expected

Darden reported fiscal second-quarter net income of $193.2 million, or $1.48 per share, up from $96 million, or 73 cents per share, a year earlier. Analysts surveyed by Refinitiv were expected earnings per share of $1.43.

Net sales rose 37% to $2.27 billion, topping expectations of $2.23 billion. Across the company, same-store sales surged 34.4%, rebounding from last year’s weak performance.

Olive Garden, which accounts for nearly half of Darden’s revenue, saw its same-store sales climb 29.3%. LongHorn SteakHouse’s same-store sales increased by 31.2%. The two chains have been Darden’s top performers throughout the pandemic, boosted by their healthy to-go business.

The company’s fine-dining segment, which includes The Capital Grille, reported same-store sales growth of 61.6%. The category was hardest hit by the pandemic as consumers opted for takeout or delivery from more casual restaurants and stopped going out for celebratory dinners. Lee told analysts on the conference call that fine dining is still weaker in cities, with its three Manhattan locations down by 40%, but suburban markets have seen a surge of customers.

As its dining business bounces back from the health crisis, Darden appears to be suffering from the same labor crunch as the rest of the broader restaurant industry. The company is accelerating its plans to hike wages. Starting Jan. 1, Darden’s wage floor will be $12 an hour, including tips. The company expects that workers will earn $20 an hour on average. This spring, it said it would raise its hourly minimum wage to $11 in January and $12 in January 2022.

“Now there may not be enough service workers on the staff of every restaurant in America, but there’s enough service workers out there to staff Darden’s restaurants, and that’s what we’re focused on,” Lee said.

Executives said that staffing is about 90% of pre-Covid levels, although slimmer menus mean that its restaurants don’t need as many workers. The biggest drag on staffing is Covid-19, which has led to workers calling out because they are sick or have been exposed, according to Lee.

Darden raised its fiscal 2022 forecast, anticipating higher sales and earnings than initially forecast. The company now expects total sales of $9.55 billion to $9.7 billion, up from its prior outlook of $9.4 billion to $9.6 billion. Wall Street was expecting net sales of $9.33 billion to $9.74 billion.

The company is also forecasting diluted net earnings per share from continuing operations of $7.35 to $7.60, higher than last quarter’s prediction of $7.25 to $7.60. Analysts were anticipating earnings per share in the range of $7.39 to $8.04.