Olive Garden raised the price for Never Ending Pasta Bowl and customers were happy to pay
Olive Garden raised the price of its popular Never Ending Pasta Bowl to $10.99 this year from $9.99 last year but customers didn’t seem to mind, with same-store sales rising at the Italian chain during the second quarter.
Parent company Darden Restaurants Inc. DRI, -3.10% reported a 3.5% same-restaurant sales increase at Olive Garden. Total same-store restaurant sales across the company’s portfolio rose 2.1%. The Never Ending Pasta Bowl maintained its popularity, supported by an annual Pasta Pass, priced at $300, according to the company.
Other chains in the Darden portfolio include Long Horn Steakhouse, The Capital Grille, and Bahama Breeze.
“Overall preference for Never Ending Pasta Bowl and value ratings were strong even though the price was increased for the first time in five years,” said Chief Executive Eugene Lee on the earnings call, according to a FactSet transcript.
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Average check was up 4.3% for the company during the quarter, which Lee said was driven 1.9% by pricing and 2.4% by menu.
Olive Garden also underwent a menu revamp to emphasize two value options: the unlimited soup, salad and breadsticks, and the Cucina Mia create-your-own pasta option. Moreover, the restaurant added 50% more chicken to the Chicken Alfredo dish, one of the company’s “highest preference entrees, Lee said.” And a “5 for $5” beverage option was launched.
“We believe management is making the right decisions to drive sales, reducing discounting and upgraded entrées, and expect more modest labor deleverage as the company begins to lap last year’s workforce investment,” wrote BTIG analysts led by Peter Saleh.
BTIG upgraded Darden Restaurant stock to buy from neutral with a $119 price target.
“The continued sales momentum, earnings upside and the stock’s decline from recent highs leads us to be constructive and we upgrade accordingly,” analysts wrote.
Darden reported sales of $1.97 billion for the quarter, up from $1.88 billion last year, but just shy of the $1.98 billion FactSet consensus.
“As industry sales continue to improve, we made the strategic choice to further reduce our incentives during the quarter, recognizing it would likely put pressure on our same-restaurant sales and traffic,” Lee said on the call. “This resulted in our GAAP to the industry narrowing, however, it enabled us to build a stronger guest base and contributed to our margin improvement.”
Lee said there were 16 fewer weeks of incentives during the quarter. The company will add incentives “if need be” in the future, he said.
“There is evidence that Darden is sacrificing near-term traffic growth and earnings power in the pursuit of long-term sustainable growth,” wrote RBC Capital Markets analysts led by David Palmer.
“We believe Darden is becoming the best of both worlds in restaurants with a combination of in-restaurant execution and everyday value with world-class digital capabilities, consumer insights, marketing, supply chain, and R&D.”
Lee said Olive Garden’s “off-premise” business grew 10.3% for the quarter, totaling 14.6% of sales for the quarter.
“While Olive Garden’s traffic gap turned negative, we were encouraged to hear that, adjusting for lost promotional transactions, traffic would have been positive,” wrote Bernstein analysts led by Sara Senatore. “Performance was particularly impressive given the aggressive discounting competitors are undertaking.”
Bernstein rates Darden shares outperform with a $134 target price.
Darden shares have gained 5.3% for the year to date while the S&P 500 index SPX, -1.54% has fallen 6.5% for the period.
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