Darden reports mixed Q2 earnings, Costco tops Q1 estimates
Darden Restaurants (DRI) — Olive Garden's parent company — surpassed fiscal second-quarter EPS expectations, raising its annual guidance. While fiscal 2024 sales projections were at the lower end, the restaurant operator reported approximately $11.5 billion in sales.
Costco (COST) beat expectations for its fiscal first-quarter earnings on the top and bottom lines. The company also disclosed plans for incoming CEO Ron Vachris to begin on January 1, and even hinting at potential membership fee increases in the future.
Yahoo Finance's Brooke DiPalma takes a closer look at these figures and each company's expectations for 2024.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Video Transcript
SEANA SMITH: Olive Garden's parent company Darden Restaurants posting a beat on earnings and raising its annual guidance as consumers turn to the dining chain for value offerings. Yahoo Finance's, Brooke DiPalma, here with us. And Brooke, when take a look at the price action. We just had the stock there up on the screen. We're seeing it under a bit of pressure here this morning. A lot of that has to do with some of the guidance that we heard from the company.
BROOKE DIPALMA: Yeah. The call roughly underway now. And they did update their fiscal 2024 financial outlook, but they did come in at the lower end of their sales range there. They now expect same restaurant sales growth for the fiscal year 2024 to come in between 2 and 1/2 to 3%. They do expect total sales of approximately 11.5 billion. But they cited check softness that's being offset by lower inflation, which is why they went to that lower end of their sales range while increasing their earnings outlook.
But they did say that they are seeing traffic similar to the levels that they expected earlier this year. As you could see right here, Olive Garden, a big business opportunity for them. Consumers flocked to their never ending possible promotion this past quarter. They said that they were offering it at the same price point they did last year. But they actually saw even more gas come in for that promotion this year.
That Longhorn Steakhouse also was a big winner. Up at 4.9% in terms of same restaurant and sales growth. But fine dining did see softness down 1.7%. As a whole, they said that continues to be challenged year over year. They said that fine dining was actually being dragged down, the most by negative check mix year over year, by less people consuming alcohol. Very interesting there. They said that, basically, the preference for alcohol today is exactly consistent with where it was pre-COVID. And last year, it was a lot higher. I know, believe it or not. That's the truth.
SEANA SMITH: I'm sorry. I was laughing at Brad's reaction. He just cannot handle the fact that people are consuming less alcohol.
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SEANA SMITH: Wow.
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BRAD SMITH: In this environment?
BROOKE DIPALMA: [INAUDIBLE] fine dining.
BRAD SMITH: Oh, my goodness. You've got people dropping the R word every day. How could you not? All right. Well, we'll leave that to the side here. We'll see if they talk about the New Year's Eve rager that takes place at Olive Garden in Times Square.
BROOKE DIPALMA: They did say holiday bookings are doing well so far. So.
SEANA SMITH: People pay a heck of a lot of money for them.
BRAD SMITH: Yeah. Maybe that's it. Yeah. Maybe that's encapsulated within there. Let's talk about Costco while we got you Brooke here. A Good American company. Also posted a beat on both top and bottom line. And its first fiscal quarter earnings results and revenue came in at $57.8 billion. That's up 6% year over year. While adjusted earnings per share also came in higher at $3.58. So what can you tell us here?
BROOKE DIPALMA: Yeah. Well, Costco continues to hold on to that share that they gained during COVID, as consumers really flocked to the wholesale giant for value and bulk items. And so what we're seeing here is sales are positive for the quarter. They did come in slightly less than expected. But there were some top takeaways from the call that really gave us insight into what we're seeing in the larger environment. They said that inflation was in the range of 0% to 1%. Last quarter, they said that it's slowing down. Bigger inflation-- deflation rather, came from big bulky items like furniture where we're seeing lower freight costs, ultimately, into lower costs for furniture. That also helped TV prices decrease.
Of course, discretionary items have been something that people are moving away from. Now they're a bit cheaper. They said that they did sell more units there. And they said that they're pressing their vendors to lower costs because of these lower commodity costs. We're also expecting a new CEO, Ron Vachris. He's going to join the helm on January, 1st. He is currently COO and President. He has held that role since February 2022. And also, when asked how they expect this CEO change up to be, CFO, Richard Galanti, said on the call that he expected to be pretty seamless. Ron has been with the company since he was 17 years old at Price Club in Arizona.
He's been with the business for more than 40 years. And that looming membership fee hike, we haven't seen one in more than 6 and 1/2 years. Typically, they raise membership fees every five years and seven months. So now we have moved past that. The CFO acknowledged that. He said that all the variables are in place to raise membership fees, including strong renewal rates, strong new signups, and strong loyalty. But he relied on his age old answer, it's a question of when, not if. We did see paid household members increase yet again 7.6% last year. And so consumers continue to go to Costco to score that value deal.
BRAD SMITH: So that means one way or another, you're paying just a little bit more for that $1.50 hot dog soda. I'm sorry. I'm sorry. It's factored in. Brooke, thanks so much for breaking this down. I appreciate it.
