Olive Garden parent Darden Restaurants bets on fine dining with $715 million Ruth’s Chris deal

Olive Garden proprietor Darden Restaurants is betting on fine dining with its $715 million acquisition of Ruth’s Chris Steak House.

The firm’s announcement on Wednesday that it is including one other fine-dining restaurant to its portfolio stunned some. TD Cowen analyst Andrew Charles wrote in a notice to purchasers that he was anticipating the corporate to focus on one other casual-dining chain, reminiscent of First Watch Restaurant Group.

But Darden executives made it clear that the deal is due to their conviction within the high-end phase.

Fine-dining eating places’ gross sales progress is predicted to outpace that of casual-dining eateries by means of 2026, Darden CEO Rick Cardenas instructed buyers Thursday on a convention name to debate the deal. Upscale eating places even have “considerably increased” margins, he added.

And whilst Wall Street and economists fear a few potential recession this 12 months, Darden stated high-income diners aren’t pulling again on spending at The Capital Grille and Eddie V’s, the corporate’s present fine-dining chains.

“As we now have seen in our fine-dining manufacturers, shoppers with earnings ranges above $150,000 proceed to dine out and preserve or improve their spending at informal or fine-dining eating places,” Cardenas stated.

The common verify at Ruth’s Chris is $97, in accordance with Darden’s investor presentation. For comparability, the typical verify at Olive Garden, which accounts for roughly half of Darden’s income, was $21 in fiscal 2022.

In latest months, the casual-dining phase has been struggling as inflation-weary shoppers commerce all the way down to fast-casual choices like Chipotle Mexican Grill or fast-food chains like McDonald’s. Both Outback Steakhouse proprietor Bloomin’ Brands and Chili’s reported falling visitors of their newest quarters. Darden’s LongHorn Steakhouse and Olive Garden eating places bucked the pattern and reported stronger outcomes than their rivals, thanks partly to the corporate’s technique of pricing under inflation.

Still, Darden executives emphasised that the Ruth’s Chris acquisition is a long-term guess, and the choice wasn’t made based mostly on the present financial cycle. Cardenas additionally stated third-party information reveals that there’s little overlap between Ruth’s Chris clients and those that frequent The Capital Grill and Eddie V’s.