Darden (DRI) Fiscal 2017 Q1 Earnings Call

posted in: Earnings Call, Notes | 0

Darden (DRI) CEO Gene Lee said there are too many restaurants and he’s hoping a few may shut down to draw some capacity out of the system

“I’m hoping that more inventory will come out of the system.  We’ve seen some big announcements of closures lately, and I also think that if you drive down the road you’re starting to see more restaurants closed. You also see more restaurants opened, but we could use some inventory to come out. That would be helpful.”

Doesn’t foresee the restaurant industry outlook improving substantially from these levels

“I would say that as we think about the industry, we prepare our plans, and we assume the industry is going to stay where the industry is going to stay.  We’re not assuming the industry is going to get a whole lot better.”

 


SK Additions:

Restaurants have to invest in experience

“I think the consumer environment, it continues to be difficult. I think there’s a lot of choices the consumer has with their discretionary income. And I think restaurants are competing against a lot of those other choices, not just restaurants. I think restaurants today have to stay — they have to stay relevant, and they need to continue to invest in the experience.”

Maybe some inflation in the second half of our year

“We still expect commodities to inflate in the back half of the year, more towards the fourth quarter. But we do expect commodities to be flat to low single digits unfavorable for the year. And, as I said, this quarter we had 150 basis points of commodity deflation. So, you would see that we’d have some inflation in the back half of the year. What does that mean to pricing? We still believe that we have the pricing strategy that’s correct for us. Overall inflation for us, when you include labor and other things, is still going to be 1.5% to 2%”

3% wage growth as market continues to tighten

“I think that your 3% assumption for wage rate in the back half of the year is probably the right assumption. The market continues to tighten.”

Average check is higher online

“Let me deal with the first one and hopefully I’ll remember the second one. We believe that it’s important to move as many people as we possibly can over to online ordering. We’ve talked about the importance of that because the average check is much higher when someone orders online and we can prompt them through that order.”

Don’t believe people aren’t eating out because groceries are cheaper

“I just have a hard time, when you think about our brands, that, where they’re experiential, that people are trading out and staying home because they can get their groceries a little bit cheaper. I’m just having a hard time with that.”

I’m not sure it’s really so promotional out there

“People say it’s promotional. I’m not so sure that the consumer believes it’s promotional because they’re still paying 2.5% more.