Darden Restaurants Inc., which also owns LongHorn Steakhouse, reported Thursday that sales increased by more than 41% to $2.45 billion in the fiscal quarter ended Feb. 27. This fell short of analysts' expectations of $2.51 billion due to the Omicron variant surge, which hampered demand, limited staffing, and increased operating expenses.
According to Darden Chief Operating Officer Ricardo Cardenas, approximately 8%, or 13,000, of the company's employees missed days in January as a result of the increase in Covid-19 cases. Simultaneously, he added, warehouse staffing issues, driver shortages, higher meat prices, and back-to-back winter storms increased costs.
Among other things, these challenges prompted the company to raise its fiscal year inflation forecast to 6% from 5.5 percent, according to Mr. Cardenas. It anticipates commodity inflation of 9%, with hourly wage inflation approaching 9%. The current quarter is the company's last of the fiscal year.
Darden raised prices last quarter in response to higher costs, though at a slower rate than its costs, according to finance chief Rajesh Vennam. The company expects its prices to rise by about 3% for the entire fiscal year.
Mr. Vennam went on to say that the company is debating whether to raise prices further while also looking for ways to cut costs.
Darden also reduced its sales forecast and lowered its earnings forecast for the year. It now anticipates annual revenue of $9.55 billion to $9.62 billion. It previously forecasted sales of $9.55 billion to $9.70 billion.
The company now expects net earnings from continuing operations of $7.30 to $7.45 per share, down from $7.35 to $7.60 per share in December.
Despite the downward revision to guidance, departing CEO Gene Lee stated that consumer demand remains strong and that wages in the United States, particularly among lower-income workers, are rising faster than costs such as higher gas prices.
"We believe that wage inflation across the country is rising at a fairly rapid rate, and so we believe that the consumer can handle that right now based on where things are today," he said, referring to higher prices.
"The environment here can change quickly, but what we're seeing today is that consumer demand remains fairly strong."
Darden's stock rose more than 1% to $132.40 per share.
In the fiscal third quarter, the company earned $247 million, or $1.93 per share, compared to $128.7 million, or 98 cents per share, the previous year. FactSet polled analysts, who expected adjusted earnings of $2.10 per share.
Mr. Vennam stated that the sales slowdown caused by the surge in Covid-19 cases reduced earnings by about 30 cents per share.