How Olive Garden turned sales around and surprised us all(Read article summary)
Darden, which owns the popular Italian food chain, reported its sixth straight quarter of sales growth Tuesday, also raising its profit outlook for the year.
It’s been a roller-coaster ride for Darden Restaurants, owners of the ubiquitous Italian food chain Olive Garden.
Just last summer, Darden was reporting a yearlong sales slide as well as a 35-percent decline in profits. As squabbles in the boardroom became more contentious and more scrutinized, Clarence Otis Jr., the company’s embattled chairman, stepped down. Another chain, Red Lobster, was sold off to a private equity firm.
Now, Darden appears to be making a comeback, thanks in large part to a board switch-up, a proclaimed focus on cost management, and some clever marketing plays.
Darden reported quarterly earnings on Tuesday that surpassed analyst projections, according to CNBC.
The company posted adjusted earnings of 68 cents per share, up from 32 cents a share in the year-earlier period. Revenue increased to $1.69 billion from $1.60 billion a year ago. Wall Street expected Darden to deliver adjusted earnings per share of 58 cents on revenue of $1.68 billion, according to Thomson Reuters.
This marks the sixth straight quarter of sales growth at Darden, which also raised its profit outlook for the year.
“Our brands performed well in the first quarter, building on the momentum from last year," said CEO Gene Lee in a statement. "This progress is a direct result of our hard work and commitment to creating memorable guest experiences in our restaurants.”
The company said that overall same-restaurant sales increased by 3.4 percent in the first quarter.
Sales at the Olive Garden were up by 2.7 percent, which was largely dwarfed by growth at Darden’s other properties, including The Capital Grille (7.2 percent), Eddie V’s (5.1 percent), and LongHorn Steakhouse (4.4 percent).
How did they pull it off?
Activist hedge fund and Darden shareholder Starboard Value Partners took hold of the company’s board last fall, renaming Starboard CEO Jeff Smith chairman of the restaurant group.
Starboard had previously criticized Olive Garden especially for excessive food waste, offering its customers non-Italian items, and not salting its pasta water, according to CNN Money.
It’s not clear where specifically the Garden now stands on those issues, though Mr. Lee attributed Tuesday’s results to a “focus on disciplined cost management.”
The company has also been maximizing on popular menu items and a loyal customer base to drive profits.
The upswing in sales comes from returning customers eating more, and at higher menu prices, according to CNN. In March, for instance, the restaurant reintroduced “Buy One, Take One,” a program that let diners take home a free additional entrée.
It also expanded on its beloved breadsticks, rolling out breadstick sandwiches offered with pasta or meatballs.
And of course, there was the Never Ending Pasta Pass – which, to some, seemed like a never-ending fiasco. This month, Olive Garden brought back its annual $100 card program, allowing holders to dine at Olive Garden an unlimited number of times over a seven-week period.
This year brought another uproar from consumers as the restaurant announced its 2,000 passes had sold out in less than one second online, reports Fox News.