Darden is roughly six months removed from its $715 million acquisition of Ruth’s Chris. According to foot traffic platform Placer.ai., the steakhouse now accounts for 47.8 percent of all fine-dining visits to the casual leader’s banners. Investors were curious at the outset how the high-end chain might complement Eddie V’s and The Capital Grille versus cannibalize bases. It appears Ruth’s Chris has provided a more accessible avenue with trade area median household incomes of $85,000 compared to $96,400 and $99,000, for Eddie V’s and Capital Grille, respectively, as seen below. Or put simply, Ruth’s Chris helped Darden reach a wider fine-dining pool—a concept worth chasing, despite recent traffic softness, given Darden’s fine-dining category grew from $830 million to nearly $1.4 billion.
But broadly, Ruth’s Chris boasts less restaurant square footage and a larger footprint than Capital Grille, particularly in suburban and smaller markets (hence the HHI difference) like Birmingham, Alabama; Destin, Florida; Annapolis, Maryland; and Wilmington, North Carolina. Capital Grille is more focused on urban markets and major city centers. “We’re reaching a consumer for a different need state than they’ve had before,” CEO Rick Cardenas said last quarter.
Darden shared at the time total acquisition and integration-related expenses for Ruth’s Chris would run about $55 million to $60 million. During the company’s Q2 update on Friday, it provided some insights into how that’s progressed.
Cardenas said Ruth’s Chris remains on track to complete “major system changes” by the end of the fiscal year. In Q2, the company closed Ruth’s Chris’ corporate office and moved the support team into Darden’s Orlando-based hub. Darden transitioned 21 restaurants this past October to one of its distribution centers and plans to do the same for the remaining corporate stores between January and March (there’s a total of 78 company-run Ruth’s Chris units). “This phased approach allows us to gather learnings and improve the transition for the other restaurants, while capturing supply chain synergies,” Cardenas said.
The company is pacing toward deploying its people management systems by the end of the calendar year as well and will begin rolling a proprietary point-of-sale system at Ruth’s Chris after Valentine’s Day, with the goal of completing all integrations, like payroll, etc., by fiscal year end.
And to get Ruth’s Chris operationally in line, Darden stopped third-party delivery (Olive Garden is famously on the no side of this equation) and eliminated lunch “wherever possible.” Lastly, Darden improved filets and decided to close the majority of locations on Christmas Day.
As Darden shared last quarter, the company identified more synergies than initially expected as it dug into the business post-sale. In turn, it had extra funds to reinvest toward guest and employee experience. Previously, Darden guided $20 million in annualized run-rate synergies. That number upped to about $35 million, giving Darden $10 million to boost the business, resulting in annualized net run-rate synergies of $25 million—$12 million in 2024 alone. Historically, Darden has a track record of rolling cash flow toward team and food. So it’s not surprising to see Ruth’s Chris’ filet as an early target.
Expounding on Darden’s decision to nix third-party delivery at the steakhouse, Cardenas pointed to Olive Garden, a brand that reported 23 percent of its business off-premises in Q2. Darden has long looked at the delivery field as a conversation that extends beyond price and profit. “It is also the execution of the restaurant, what it does to our teams and how we can execute our existing to-go business,” Cardenas said. “And we’ve made investments over the last few years to make that experience even better for our consumer, and we continue to do that.”
Darden does offer third-party delivery in a few concepts and has for a while. Cardenas said the performance in those units “isn’t significantly different than the ones that don’t have it.”
“So we still feel really confident about our decision to stay out of the third-party delivery. Even if we had to price more to cover that, our consumer would see that as our price, not necessarily the price for delivery,” he said. “So, as of now, we’re still steadfast in our resolve to stay out of third-party delivery.”
Overall, Darden’s total sales in Q2 bumped 9.7 percent to $2.7 billion, driven by blended same-store sales growth of 2.8 percent and sales from the addition of those 78 corporate Ruth’s Chris restaurants, and 45 other net new locations.
Same-store sales (year-over-year):
- Olive Garden: 4.1 percent
- LongHorn: 4.9 percent
- Fine dining (Eddie V’s, Capital Grille): –1.7 percent; to note, Darden won’t include Ruth’s Chris in the cadence until it’s been owned and operated by Darden for a 16-month period (Q2 2025)
- Other business (Yard House, Seasons 52, Cheddar’s, Bahama Breeze): –1.1 percent
Those figures competed with industry averages, according to Black Box Intelligence, of negative 1.3 percent for same-store sales and comparable restaurant guest counts of negative 4.8 percent.
Darden opened 17 locations during the period, bringing the year-to-date total to 27 across 16 states, four of which were re-openings.
Cardenas said Olive Garden, LongHorn, Yard House, Cheddar’s, Seasons 52, and Bahama Breeze reached all-time highs for overall guest satisfaction in the quarter.
At Darden’s flagship Olive Garden, the brand passed $5 billion in sales on a trailing 52-week basis for the first time in chain history. It did so riding one of its buzziest promotions. The Never-Ending Pasta Bowl deal pulsed through Q2 and carried the same price point as last year, “making it an even stronger value,” Cardenas said. Guest demand was higher year-over-year and Olive Garden secured the highest refill rate on record. Cardenas said Darden made a concerted effort to ensure employees offered every customer a refill, whether on this deal or the everyday Never-Ending First Course. “This iconic promotion also satisfies all three of our marketing activity filters,” Cardenas said. “It elevates brand equity, it’s simple to execute, and it’s not at a deep discount.”
CFO Raj Vennam added Olive Garden’s Never-Ending Pasta Bowl contributed to flat same-restaurant guest counts for the quarter, or 480 basis points better than Black Box’s casual-dining averages. Olive Garden offered it to its 15 million or so eClub members as a special perk. Darden elects to stream value through exclusivity rather than discounts—something Cardenas said would continue.
Underlying the Never-Ending Pasta Bowl is a strategy Darden flowed throughout inflationary times. The company deliberately underprices inflation in favor of chasing traffic gains.
In respect to price over the last four years, Darden cumulatively has sat just under 17 percent. For the same window, full-service restaurant CPI has been 24 percent. So Darden essentially created a gap of 700 basis points. Versus quick service (29 percent), it’s closer to a 1,200-basis-point canyon.
Darden’s pricing carryover from last year is roughly 3 percent. Olive Garden hasn’t taken any price this fiscal calendar and doesn’t, at least for now, expect to do so near-term.
Cardenas noted the holidays are typically Darden’s busiest stretch of the year. On Thanksgiving Day, Ruth’s Chris, Capital Grille, Eddie V’s, and Seasons 52 set new daily sales records. And despite negative Q2 comps for fine dining, Cardenas says Darden has been encouraged by strong holiday bookings so far.
Pulling out to wider themes, Vennam said Darden witnessed check softness offset by lower inflation. The company expects flat to slightly negative traffic for the full year as check comes down about 50 basis points. Darden projects total sales of $11.5 billion, same-restaurant sales growth of 2.5 to 3 percent, 50 to 55 new restaurants, capital spending of about $600 million, total inflation of 3 to 3.5 percent, including commodities inflation of 2 percent, an annual effective tax rate of 12 to 12.5 percent, and roughly 121 million diluted average shares outstanding for the year. Darden in Q2 improved segment profit margin by 230 basis points from last year thanks in large part to COGS moderation. Vennam said pretty much all categories outside of beef were better than expected. Seafood was deflationary and produce came in favorable, too.
Cardenas said the restaurant consumer appears resilient, but a “little more selective when it comes to how they’re managing check.” Darden’s data shows the company is gradually moving back to pre-COVID demographic mix. Across all of its segments, household incomes above $200,000 are mixing more of sales than last year, yet still below 2019 marks. And incomes under $75,000 are showing up less often than 2022, but still more frequently than pre-virus days. The largest drop has come, as many quick-serves continues to attest, with incomes at the $50,000 and below level—a shift most pronounced, Cardenas said, in Darden’s fine-dining segment.
And one more progression, he added, is diners 65 years old and above have begun to dine out more from prior quarters and a bit more at lunch.
“What does that mean for us? What does that mean for the brands that we have?” Cardenas said. “We believe that operators can deliver on their brand promise, which we’ve said before, and value will continue to appeal to consumers. I’m confident we’re well-positioned and prepared for what we have to deal with, thanks to the breadth of our portfolio and our astounding team members and what they do every day to create exceptional experiences for our guests.”
Fine dining has been a winding journey. Last year, Darden spoke about seasonality trends starting to normalize after the pent-up demand and “exuberance” that peaked into the summer and fall. Vennam said Darden ended Q2 with positive fine-dining comps in November, and, as Cardenas mentioned, record Thanksgiving sales coupled with holiday bookings, suggest an optimistic finish to the calendar year.
The biggest drop, though, owes to alcohol, Vennam added, and might be a recalibration rather than a downturn. The preference for adding alcohol to a meal today is more consistent with pre-COVID trends than the last couple of years, when incidence rates spiked. The alcohol mix for fine dining is down nearly 200 basis points.
Darden’s casual brands overall observed about 50 basis points of negative mix. That, too, was mostly driven by alcohol, Vennam said.
Over the next 12 months, Cardenas said, Darden will continue to invest in tech to improve execution as it looks to leverage scale. “Our goal with technology is to eliminate friction, and we’ve eliminated a lot of friction for the guest on the to-go experience, on being able to put their name on waitlist,” he said. “Now, we want to eliminate friction in our team, eliminate our management friction to make it easier for them so they don’t have to spend as much time doing what we think are non-value added tasks, ordering, receiving, scheduling, which is value added, but if we can make it easier for them to schedule, they can spend less time doing that and spend a lot more time with their team and with their guests.”
“What I would say is, it’s our back-to-basics operating philosophy that’s going to continue to get us to grow,” Cardenas added later on the call. “And that’s excellent food, excellent service, and an inviting atmosphere, executing better than the restaurant next door. That’s not necessarily strategic, that’s not a silver bullet, that’s hard to do, and we do it really well.”