Ca$htag$: Casual Dining in Sweet Spot as DRI Serves Earnings

SPEAKER_1 (0:00)

Time now for our Cash Tag segment. For that, let's bring in our next guest, Landon Swan, Co-Founder of LikeFolio with the latest sentiment data on Darden ahead of its quarterly results. Landon, good to see you today. So I took a look at your data and it looks pretty solid for Darden and others actually in this sector. But why don't you walk us through what we should notice on a headline level?

Landon Swan (0:21)

Yeah, it generally is pretty strong for the casual dining sector, our data that is. And what's interesting is a lot of the strength, especially that we see with Darden, comes in the last quarter. I mean, we have the 30 day moving average on demand was pretty much near flat on a year over year basis about a quarter ago.

And now it's shot up to about plus 22%. Now that moves a lot. It's a 30 day moving average. So there's a lot of movement in that number, but it is at plus 22%. And you can kind of see here, compared to some of the competition, most everyone is doing pretty well.

Outback, Blumen is not, is there sort of the outlier, but everyone else is doing fairly well when it comes to demand on a year over year basis. So, and again, most of this comes from the very last part of the, the last three months or so. So I think that this is going to be reflected in the earnings report. And I think that, you know, investors are likely to see fairly good numbers. Not incredible, not blowout, but, you know, nice numbers to see. And a lot of it comes down to, you know, what we're seeing in the, you've got Olive Garden and you've got Longhorn. Those are the two big names, really. I mean, they've got a ton of brands. But those are the two that everyone's looking at. Olive Garden, of course, is the main at around, a little over 40% of the revenue. And it's, disappointing is not the right word, but its comps are slowing down. I think they're plus 2% on the same store sales, whereas Longhorn is, you know, plus six or plus 7% same store sales. They're growing much more quickly. But they're only about a fourth of the revenue. That won't be the case for long if they continue on this trend. And of course, their fine dining is down, as everyone's sort of trading down into Olive Garden, into Longhorn, off of those others. But they're also, there's a trade down play, which is interesting, but there's also a trade up play. And we've talked about this a lot, where fast food kind of got out of line on pricing. And they went with, you know, they held, they took inflation and just passed it directly on to the consumer, which, you know, I can't fault that too much. But what that led to was people realizing that they're spending about, very close to the same amount of money at a McDonald's or one of those, as if they went to Olive Garden and, you know, went on the cheaper side on the menu. And so that realization has been happening over the last year or two. And people have been trading up from fast food to casual dining, and then also trading down from fine dining down to these casual dining. So they're kind of in a bit of a sweet spot, especially Longhorn Steakhouse, because there's a, you know, we've got trend data on protein and beef that's pretty strong right now. Consumers have been moving in that direction for the last year or two. So that's one of the big drivers for Longhorn. But I think that for Olive Garden, they've been able to hold the line on prices.

And it's a gamble, because I think they're running at a .3% above, actually, I'm sorry, under inflation. So they're really keeping, you know, holding the line on that price value. And what that does is it brings more people in. And they've got their fixed cost. You know, food, you know, restaurants generally are run 25 to 40% variable margins. So the next person that walks in the door, they're making that much more money. And so they're basically saying, we're gonna make less per person. And we've seen that margins are going down, but we're gonna get more people in the door.

I think it's a good short-term strategy. And I think that long-term it could also pay off because people are gonna have that habit of going to Olive Garden and mentally thinking, you know what, this is actually a pretty good deal. So that later down the road, when everything kind of cools and maybe they can raise prices, as other competitors do, they can get their margins back but still be seen as still a good value play. So basically what we're saying is, generally speaking, we're pretty positive about this industry and also this company, Darden, specifically. Not their whole portfolio, but the two big ones that everyone cares about, we think are both pretty positive going into this report.