Updated from 1:28 p.m. to include Facebook Live video
While fast food chains such as Sonic (SONC warn of tepid sales as consumers choose to eat at home amid falling grocery store prices, full-service restaurant Darden (DRI - Get Report) is still managing to defy the odds thanks to momentum at its largest concept Olive Garden.
On Tuesday, Darden -- which also owns The Capital Grille and Longhorn Steakhouse -- reported fiscal first quarter earnings of 87 cents a share, up from 67 cents a share a year earlier. The result blew past Wall Street forecasts for earnings of 82 cents a share. Darden lifted its full year earnings outlook to $3.87 to $3.97 a share from a prior range of $3.80 to $3.90 a share. Shares rose slightly by midday trading.
Olive Garden was the clear standout, as the Italian fare concept delivered a 2% same-store sales increase. It marked the chain's eighth straight same-store sales gain, which is no small achievement in the sluggish restaurant sector. "We are running better restaurants today than we were in the past. This is a momentum business and I think this business has that momentum right now," Darden's CEO Gene Lee told analysts on a call.
Nowhere is Darden's better execution more on display than at Olive Garden, which has hit its groove due to a focus on creative marketing and clever new food introductions.
Olive Garden's spaghetti pies and breadstick sandwiches launched for a limited time only a few months back and explain a great deal about why Darden's Olive Garden chain has been on the comeback trail. In short, they both speak to a brand (Darden's largest, with more than 840 locations) that is being more innovative and offering more value just a few years removed from an ugly battle with an activist investor that led to the removal of the entire board.
Meanwhile, Olive Garden has extended its popular breadstick sandwich platform that successfully debuted last year by introducing spicy chicken and eggplant parmigiana variants this year. Recently, the company made available 20,000 free never ending pasta pass cards for a promotion that began on October 3 and runs until late November (TheStreet tried the new pasta pass promotion on Tuesday, see below video). Last year the company sold out in record time 2,000 of the passes that cost $100 and allow a person to plop their rear-end in an Olive Garden and gorge on all the pasta on the menu they can eat, until the end of November.
The money raised from the cards, about $2 million, isn't going to move the needle on Olive Garden's current quarter but could easily be something that goes viral (think people spending the day at Olive Garden and eating every pasta on the menu) and drives interest in the brand. At the very least, the attention from the passes will likely get people through the door trying the new menu and also enhance the company's value messaging.
The comeback of Olive Garden over the past two years has helped fuel Darden's stock. Shares of the restaurant operator have gained about 33% during the last two years, outperforming the S&P 500's 9.8% gain.
Trading at a reasonable 16 times forward earnings with an over 2.5% dividend yield, Darden may still be worth a nibble based on the continued turnaround of Olive Garden and visible struggles at several competitors such as Brinker International (EAT - Get Report) and Buffalo Wild Wings (BWLD .