Restaurant traffic rises, but Darden earnings miss expectations

There was mixed news for restaurant operators in February, as the omicron COVID-19 variant began to subside and restaurant traffic and spending increased.

Online and physical restaurant traffic was up 2 percent, and consumer spending was up 8 percent in February compared to a year ago, according to NPD. However, total restaurant visits in the month were down 8 percent from the pre-pandemic level in February 2020, according to NPD’s data.

Orlando, Florida, U.S.A.-based Darden, which operates LongHorn Steakhouse, Olive Garden, The Capital Grille, and several other restaurant chains, reported it suffered USD 100 million (EUR 91 million) in Q3 2022 losses attributed to impacts of the omicron variant.

Despite the hit, the company’s total sales soared 41.3 percent compared to the same quarter last year to reach USD 2.5 billion (EUR 2.2 billion). The increase was driven by a blended same-restaurant sales increase of 38.1 percent and the addition of 33 net new restaurants, the company said in a press release.

In January, typically a high-volume period for Darden, omicron “significantly impacted consumer demand, restaurant staffing and operating expenses,” Darden Chairman and CEO Gene Lee said on an earnings conference call.

“When we talked last in December, we could not have predicted the impacts omicron would have on our business. In fact, the dramatic spike in cases create[d] the most difficult operating environment since the initial onset of COVID two years ago,” Lee said.

Darden also experienced “substantial weather impacts, all of which resulted in significantly lower sales and earnings than our internal expectations,” Lee said.

In addition to higher levels of sick pay and “significant overtime costs due to staffing shortages,” caused by omicron, the spike in January caused further supply chain disruptions and Darden executives “expect inflation to be higher in Q4 than when we talked in December,” Lee said.

Omicron impacted staffing for the restaurant company’s supply chain partners in January as well.

“For labor-intensive food production, this resulted in reduced supply and increased cost, at a time when protein prices typically shift down from the heavy holiday buying season,” Darden President and CEO Rick Cardenas said.

Lee said the company has “implemented pricing actions to mitigate the impacts of rising costs,” but did not provide additional details.

The downward trend was short-lived, as COVID cases declined and the operating environment normalized, the company said. Darden’s sales improved throughout fiscal February, “and we had strong results that exceeded our internal expectations,” Lee said.

"Sales strength has continued into March," he said.

The overall restaurant industry outlook remains strong for the spring, NPD Food Industry Advisor David Portalatin said.

“We should see some seasonal demand start to heat up in March and COVID-related concerns diminishing,” he said.

However, the “wild card” will be how consumers respond to ongoing inflation, including the cost of a gallon of gasoline reaching USD 4.00 (EUR 3.64) or more, Portalatin said.  

Photo courtesy of Kristi Blokhin/Shutterstock