Overall, however, Olive Garden wants to win as many occasions as it possibly can, Lee noted. He just looks at them as two totally different occasions, and “what we work hard at is being top of mind in each of them, and we'll never know for sure what's incremental and what's not,” Lee said. “We just know we want to play, we want to be very good, the best at off-premise, and try to create a frictionless experience. We want to be the very best of in-restaurant that we can possibly be, and that's what we're working hard at.”
Remodels and execution
Olive Garden has completed about 230 remodels to date in the last four years (28 this past quarter). Lee said the chain needs to finish another 70 to get the “fleet up to speed.” Then it will start refreshing the “Farmhouse” designs, which won’t be nearly as capital intensive as the “Revitalia” updates. The process isn’t as dire as some brands, though. “There's times I walk into an Olive Garden that's 25 years old that really hasn't been remodeled recently, and I'll look around and say, ‘Boy, this place looks great. We've got good furniture, we're well painted, it looks clean.’ And so, our team has done a great job keeping these buildings in outstanding condition,” Lee said.
Not to ignore, Olive Garden did have two of its leading promotions to execute this past quarter. The Buy One, Take One and Never Ending Pasta Bowl deals ran, with the latter being supported by the famed Olive Garden Pasta Pass. All 1,000 passes were claimed in less than a minute, Lee said. Even with the price going up for the first time in five years, Lee noted the value ratings were strong.
In fact, even with a steady rise in average check, Lee said value has gone up at Olive Garden in general. This can be credited to a degree to menu moves made to mitigate the mix growth, like the Chicken Alfredo change and Never Ending Pasta Bowl promotion (50 basis points). “We saw some significant increase in the mix there, and because the promotional calendar had the value promotions there, we saw a lot of trade up out of the promotional items into that item,” Lee said.
With the Never Ending Pasta Bowl taking a $1 increase, Lee said Olive Garden witnessed some trade out into regular, higher-priced menu items. Additionally, the $1 boost added some contribution to the mix coupled with less incentives (accounted for 30 basis points).
“The big change we made with our Chicken Alfredo dish and the positive mix change that had in Q2 was primarily because we had lower-priced promotions,” he said. “As the promotional calendar goes up and the price point goes up in the third and fourth quarter, you'll have less trade—the trade will be less beneficial … I feel good about our promotional calendar in the back half of the year.”
If need be, Olive Garden can pull that promotion lever and kick up its incentive strategy later in the calendar year.
The full results
As a company, Darden reported net income in Q2 of $115.6 million, or 92 cents per share, up from $84.7 million, or 67 cents, in the same year-ago period. FactSet analysts called for earnings per share of 91 cents. Sales increased 4.9 percent to $1.97 billion, just missing the Wall Street prediction of $1.98 billion. Blended same-store sales hiked 2.1 percent.
Darden also increased its per-share earnings expectation to $5.60–$5.70 from its previous guidance of $5.52–$5.65.
By brand: LongHorn saw its same-store sales increase 2.9 percent; The Capital Grill had a 3.7 percent lift; Eddie V’s comps were up 0.9 percent; Yard House down 1.1 percent; Bahama Breeze fell 1.1 percent; Seasons 52 dropped 0.8 percent; and Cheddar’s Scratch Kitchen recorded a 4 percent decline.