Darden Restaurants, a top full-service US restaurant group with 1,914 locations across 50 states under its eight brands—Olive Garden, LongHorn Steakhouse, Cheddar's, Yard House, Ruth's Chris, The Capital Grille, Seasons 52, Bahama Breeze, and Eddie V's—warned on Thursday that lower-income customers are pulling back on spending.
"Transactions from incomes below $75,000 were much lower than last year, and at every brand, transactions fell from incomes below $50,000. Similar to Q2, this shift was most pronounced in our Fine Dining segment," Chief Executive Officer Rick Cardenas told investors on an earnings call.
However, Cardenas pointed out, "But specifically, your question for the third quarter, transactions from households with incomes above $150,000 were higher than last year."
Consumer behavior shifts are materializing for the restaurant group and serve as a health check proxy for consumers.
Bloomberg provided a snapshot of Darden's earnings that were underwhelming and offered a negative outlook:
The Olive Garden and LongHorn Steakhouse owner's sales missed analysts expectations, attributing the results to unfavorable winter weather in January that cut traffic by 1%, and lower sales in February which "exposed consumer weakness," the company's Chief Financial Officer Raj Vennam added on the call, specifically highlighting softness in Texas and California.
Additionally, Darden cut its 2024 same-store sales growth outlook, and forecast next quarter's same-store sales growth of only -0.5% to 1%. The company's shares dropped as much as 6.9% in early New York trading, the most since May 2022.
Cardenas' disappointing comments about low-tier customers came one week after Dollar Tree said the average ticket size for customers declined last quarter.
A pinched low- and middle-income consumer comes as no surprise given elevated credit-card balances and rising delinquencies, as well as depleted personal savings. Furthermore, negative real wage growth has been a disaster for the working poor in the era of failed Bidenomics.
