Darden Restaurants Inc. attributed its fiscal third-quarter earnings beat to a number of factors, among them, customers reacting favorably to menu enhancements like extra chicken in Olive Garden’s chicken Alfredo, and their willingness to pay more to get more.
Check average was up 4.2%, owing to pricing and menu mix, according to Eugene Lee, chief executive at Darden.
“This mix was driven primarily by consumer preference as guests reacted positively to our promotions and our chicken Alfredo entrée that now contains 50% more chicken,” he said on the earnings call, according to a FactSet transcript.
Oven Baked Pastas and Never Ending Stuffed Pastas were also successful promotions, with both dishes getting high marks in customer satisfaction, he said.
Off-premise business, which includes take-away, also grew 13%, with Valentine’s Day serving up 20% of off-premise growth, as the chain calls those to-go orders. Valentine’s Day is the second busiest day of the year for off-premise service, Lee said.
“We expect Olive Garden to continue to drive check growth for the next two quarters, while holding traffic roughly flat, resulting in continued same-restaurant sales outperformance and margin expansion,” wrote SunTrust Robinson Humphrey analysts in a note.
Analysts also think the 0.1% growth in traffic is “encouraging” after Olive Garden cut the number of email promotions. The casual dining average is for a traffic decline of 1%.
SunTrust rates Darden shares buy and raised its price target to $141 from $136.
“Darden comps continued to outpace the industry, despite a deliberate strategy of reducing promotions, as consumers recognize the value inherent in core offerings,” wrote Bernstein analysts led by Sara Senatore. “Despite solidly positive mix and modest price, Olive Garden’s traffic gap returned to positive territory as consumers have shown preference for higher price (but better value) offerings.
Bernstein rates Darden shares outperform with a target price of $140.
J.P. Morgan highlights the company’s fine-dining chains, which includes The Capital Grille. Fine dining is 8% of Darden’s revenue.
Another of Darden’s fine dining names, Eddie V’s, experienced a 3.7% same-restaurant sales increase.
“Recall that the company has added capacity to Capital Grille and has made significant progress on Eddie V’s margins,’” analysts wrote.
J.P. Morgan rates Darden stock neutral but raised its target price to $123 from $116.
Darden shares closed Thursday up nearly 7%, and the stock is up another 1.5% in Friday trading. Darden has rallied 18% for the year to date while the S&P 500 index SPX, -1.23% is up 12.1% for the period.