Darden Restaurants raises prices, but below inflation rate

It’s costing diners more to eat at Olive Garden and other Darden Restaurants chains, but the Orlando-based company says it’s not raising prices to match inflation completely.

The company said it was hit with 7.5% inflation during the quarter ending May 29. It raised prices an average of 6% as the business continued its strategy of strengthening its “value leadership position,” said CFO Raj Vennam during an earnings call Thursday.

Darden’s prices rose 3% over the course of the company’s fiscal year, which also ended May 29, compared to 6% inflation during that time, Vennam said.

“We’re choosing not to pass along all of our inflation to our guests and for a couple reasons,” Vennam said. “We don’t think all of this cost is permanent.”

He said although the cost of chicken, dairy and beef are at high levels right now, the company does not believe that will stick around for the long term.

“We think it’s prudent to be cautious and preserve flexibility,” Vennam said.

Eating out cost 7.4% more in May than a year ago, the largest annual change since the 12 months ending in November 1981, according to the federal Consumer Price Index. Full-service meals jumped 9%.

Darden, which has 1,867 restaurants including Olive Garden, LongHorn Steakhouse and other chains, reported strong quarterly earnings Thursday. Sales were up 14.2% to $2.6 billion from the same quarter a year ago, with same-restaurant sales up 11.7%.

Darden’s stock was up 0.42% to close at $155.60 Thursday.

It was the first earnings call since the retirement of CEO Gene Lee, with longtime Darden staffer and executive Rick Cardenas taking the helm. Cardenas said industry sales have slowed from May to June, but some of that might be a return to normal summer seasonality the company did not experience last year as dining rooms reopened and people felt more comfortable eating out.

He also connected any potential drop in customer demand to possibly lower inflation.

“If the consumer slows dramatically, if we see a big slowdown in consumer traffic, we would also expect the rate of inflation to decline as well,” Cardenas said.