00:00It was a pretty solid report. They were able to drive pretty strong same-store sales, especially at Longhorn. They
00:10had a social media post go viral about the return of their Parmesan-crusted lamb chops.
00:18So all in all, it was a pretty good quarter. The issue would really be twofold. Number one is their
00:25fiscal 27 guidance came in light on the EPS line.
00:30This company is known to guide pretty conservatively. So that could be what's going on there.
00:36And the other thing is, you know, sales are going to slow sequentially.
00:40So sales are going to slow sequentially for everyone because the restaurant industry had a very good summer last year.
00:46So now we have to lap those tough pumps. We have tough face effects and especially so for Darden's brand.
00:53So Darden's brands had a nice boost last year from rolling out third-party delivery with Uber Eats.
01:00And now that they're going to lap it, especially Olive Garden, sales are going to slow.
01:05So, Michael, they also own Ruth's Chris Steakhouse. You mentioned Longhorn.
01:08But what is happening at Olive Garden? We know that they've been trying to get things back on track.
01:14And they even were doing smaller portions. I think they're still doing that.
01:18That doesn't seem to be taken. What's going on?
01:20Why can't they seem to gain traction with the consumer?
01:25Yeah, you know, I don't necessarily feel that that's the case.
01:29I mean, they had same-store sales that were pretty strong, you know, last year, right?
01:35Like, it's basically part of the issue is their own success.
01:39So last year, Olive Garden had a pretty good year.
01:42And now they have to lap those strong results.
01:44You know, we still think that Darden is going to outpace most of their casual dining piers, Olive Garden included.
01:52You know, but we see this industry as a whole slowing this summer.
01:58You know, low-income consumers are still strapped, right?
02:03They've spent their higher tax refunds, you know, at the pump.
02:08And, you know, we expect restaurant, you know, sales here to start to decelerate here over the next quarter.
02:16And, you know, Olive Garden and Darden is not immune.
02:20So what do you see, Michael, just cross the board?
02:23You cover all these restaurants.
02:24You see from the quick service restaurants all the way up to some of the higher-end stuff.
02:30Is the K-shaped economy apparent in the restaurant business as well?
02:36For sure.
02:37That's probably – we've been writing about it for several years now.
02:40We were probably the first industry to feel it.
02:43And I'd say going back two-plus years, we saw it.
02:49I think – I forget.
02:51Maybe it was Chipotle who was one of the first to admit it because they didn't have that many low
02:55-income consumers.
02:56So it wasn't going to impact them as much as some of their peers.
02:59But, you know, yes, this is – inflation really impacts the restaurant industry.
03:05Number one, it impacts low-income and middle-income consumer spending, right?
03:10People have been spending way more at the pump over the last couple months than they had been.
03:15That takes money, you know, out of their wallet that could be used for restaurant visits.
03:21Restaurants are very, very sensitive.
03:24It really is a canary in the coal mine for the economy in the United States.
03:29And low-income consumers remain strapped.
03:31Low- and middle-income got a boost with these refund checks.
03:35You know, we expect that to be short-lived.
03:38And now we just have to, you know, face some tough comps.
03:41You know, I think it's a tough time for restaurants.
03:44You know, low-income consumers not getting better, and it's not going to until we see inflation get back down
03:51to that 2 percent or below.
03:54Yeah, the margins are just so razor-thin for so many of these restaurants.
03:57But did they say on the earnings call anything about beef prices, these high beef prices, and the fact that
04:02consumers are still going to steakhouses, it seems like, in droves?
04:07Including tonight.
04:09Steakhouses do pretty well in times of beef inflation, and part of that is, you know, the gap between what
04:16they pay at the grocery store and at the restaurants tends to close.
04:20Restaurants can sell different cuts of meat, right, so they can be more particular and take advantage of movements of
04:27different cuts of meat.
04:29And so the gap actually shrinks when we see beef inflation, and so people will opt to get their steaks
04:36out at a restaurant.
04:38This year, we're looking for more inflation.
04:41It's not going to be what we saw last year.
04:43So Darden was talking about some low single-digit beef inflation.
04:47It's going to be higher in the first quarter, but then it's going to start to lap some really strong
04:52inflation in the back half of last year.
04:54And so for that reason, the chain is going to see less beef inflation, and the entire industry is going
04:59to see less beef inflation as the year goes on.
05:02I'm getting my New York strip tonight at Keene's Steakhouse.
05:05I passed Keene's the other day, and I thought of you.
05:07That's your favorite steakhouse in the city, right?
05:08Yeah, some boys are coming in from out of town.
05:10Nice.
05:10That's where they want to go, so we'll do that.
05:13Hey, Mike, one of the industries singled out as potentially at risk from tighter immigration was the restaurant industry.
05:21Have you seen that?
05:22Has that come to fruition?
05:24Yeah, we have seen it.
05:26And, you know, we've been writing our mid-year outlook, and what we've been talking about is that casual dining
05:34in the first half of the year outperformed quick service restaurants in terms of their sales, in terms of valuation.
05:41They really have for the last year and a half.
05:43And so a big part of that is a better supply and demand balance.
05:48So since the pandemic, like right after the pandemic and for a while, casual dining chains, full-service sit-down
05:56chains have been shutting stores.
05:57In fact, they've been shutting them for 15-plus years since the Great Recession.
06:01And so – but at the same time, quick service and fast casual names, you know, for some reason, this
06:08narrative came out that quick service was recession-proof, as ridiculous as that is.
06:13And, you know, people were building quick service and fast casual chains as fast as they could for the last
06:19five or six years.
06:20And now that part of the business is overbuilt, whereas casual dining has a better supply and demand imbalance.
06:29And so now that, you know, immigration has declined, you know, these full-service chains are just in a much
06:36better spot.
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