Earnings Call Transcript - DRI Q1 2025

Operator, Operator

Hello, and welcome to the Darden Fiscal Year 2025 First Quarter Earnings Call. Your lines have been placed on a listen-only mode until the question-and-answer session. This conference is being recorded. If you have any objections, please disconnect at this time. I'll now turn the call over to Mr. Courtney Aquilla. Thank you, Courtney. You may begin.

Courtney Aquilla, Investor Relations

Thank you, Kevin. Good morning, everyone, and thank you for participating on today's call. Joining me are Rick Cardenas, Darden's President and CEO; and Raj Vennam, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted in the Investor Relations section of our website. During today's call, any reference to industry results refer to the Black Box Intelligence’s casual dining benchmark, excluding Darden. During our fiscal first quarter, industry same-restaurant sales decreased 2.5% and industry same-restaurant guest counts decreased 5.4%. This morning, Rick will share some brief remarks on the quarter and discuss some of the actions our brands are taking in response to the current environment. And Raj will provide details on our first quarter results and an update on the Chuy's acquisition. Now, I will turn the call over to Rick.

Rick Cardenas, CEO

Thank you, Courtney, and good morning, everyone. We operate in a very dynamic competitive industry, and we have proven we can successfully navigate challenging environments due to our strategy rooted in our four competitive advantages and our back-to-basics operating philosophy. While we fell short of our expectations for the first quarter, I believe in the strength of our business, and I am confident that the strategy we developed nearly 10 years ago remains the right one for our company. We have talked a lot about Darden's competitive advantages and how they provide a platform for our brands that enables them to deliver their ultimate potential. However, driving strong operational execution is how we bring our brands to life, and we do that through our back-to-basics operating philosophy anchored in culinary innovation and execution, attentive service, and an engaging atmosphere, supported by smart and relevant integrated marketing programs that resonate with our guests. Our brand culinary teams have continued to innovate to be ready when needed. But we have a high bar when it comes to introducing any new item to ensure it drives value for our guests and is simple to execute. While all of our brands are innovating the menu, here are some examples from our four largest revenue brands. The Olive Garden team has been working on new dishes to give their guests another reason to visit in the back half of this fiscal year. This includes the return of two guest favorites, Steak Gorgonzola Alfredo and Stuffed Chicken Marsala, which were removed from the menu during COVID. Both have been recast with higher quality ingredients and easier execution for their restaurant teams. And both fill a gap on Olive Garden's menu for center of the plate protein-forward dishes. This announcement received tremendous applause from their general managers at their GM conference in August. The LongHorn Steakhouse team closed their biggest menu gap with the addition of a healthier chicken dish. Their new lemon garlic chicken has scored extremely well in guest satisfaction ratings. LongHorn also introduced a new dragon fruit margarita during the quarter, made with an exclusive Patron Reposado tequila that was specially blended for LongHorn, and it has already become their top selling margarita. The Yard House team introduced a new pizza platform that has resulted in higher quality pizzas that are cooked in half the time, and they have seen a significant increase in preference and guest satisfaction as a result. Lastly, at Cheddar's Scratch Kitchen, they create value by leveraging existing product across multiple menu items through purchasing opportunity buys and limited time offers. For a limited time, they are offering two grilled pork chops topped with caramelized onions and bourbon glaze with two sides starting at $12.99. Our supply chain team and the Cheddar's culinary team continue to actively search for potential opportunity buys to drive exceptional value for guests, and you will see more examples of their efforts in the back half of this fiscal year. Additionally, the Cheddar's team introduced a new lunch specialist platform earlier this calendar year that continues to win on price and build guest loyalty. During the quarter, they also reintroduced a guest favorite to the menu that was removed during COVID. The team worked extremely hard to simplify the process and succeeded. Onion rings are back and guests are loving them. The Facebook post announcing the return of onion rings was the best engaged and most viewed post in Cheddar's history. From a service perspective, guests who visit our restaurants continue to have great experiences, which we see reflected in our guest satisfaction scores, but we know the full-service category lost focus on pace of meal over the years. In a world that has gotten faster, full-service restaurants haven't kept up. We know we can do a better job of evaluating our guests' time, and that was a central theme of our general manager conferences last month. We believe we have an opportunity to drive incremental sales over time by capturing the quicker meal occasions. Providing an engaging atmosphere at each one of our restaurants, where guests enjoy themselves and the occasion is fundamental to creating exceptional guest experiences. Each year, we spend on average approximately $200,000 per restaurant for maintenance and remodels to keep our buildings fresh and inviting. But atmosphere is more than just the physical restaurant. It also involves the people who bring our brands to life. Congratulations to this year's winner of Yard House's annual best-on-tap competition, Andrew Stafford from The Yard House in Denver, Colorado. Regarding our marketing efforts, the marketing that supports these priorities comes to life in different ways across our brands. First, it must elevate brand equity. Second, be easy to execute. And third, not be at a deep discount. Perhaps nothing fits our marketing filters better than Never Ending Pasta Bowl at Olive Garden. We know that, in this environment, guests are motivated by compelling offers like Never Ending Pasta Bowl that provide a strong value during a limited time. When the Olive Garden team saw their traffic gap to the industry go negative during our first quarter, after years of outperformance, they reacted by moving this promotion up and having it run for a total of 12 weeks, three weeks longer than they had planned, and four weeks longer than last year. To help keep this offer exciting during a relatively long window, Olive Garden will introduce a new garlic herb sauce during the fifth week of the promotion. Beyond checking all our marketing filters, Never Ending Pasta Bowl offers guests tremendous value. The starting price point hasn't changed in three years, making it an even more compelling value, and Olive Garden is putting additional marketing support behind it. We have said that we intend to price below our competitors and inflation over time. In fact, when you look at Olive Garden over the last five years, they have priced more than 800 basis points below the full-service industry average and 700 basis points below grocery inflation. The Olive Garden team recognizes the need to do a better job of communicating this value to guests, so their advertising will prominently feature more price points this year, compared to last year, when the advertising message was primarily focused on equity building. Dan and his team are intensely focused on their business and prepared to react to market conditions as we move through the rest of this fiscal year. While Olive Garden has a national television program, they've also used connected TV to reach their guests, where they are consuming content. Using learnings from Olive Garden, we have successfully tested connected TV across a number of brands including LongHorn, Yard House, and Cheddar's, and it's an opportunity we remain focused on. Before I wrap up, I want to share some details regarding the exciting partnership we announced this morning with Uber. Olive Garden already offers an amazing large-party catering experience delivered by their team members. However, their guests have been asking for small order home delivery options. As you also know, we had concerns about the third-party model. We began having more serious discussions about Uber Direct in April and our teams began working on the systems integrations in May. It was apparent to us that the solution addressed our concerns. From a guest perspective, it protects the in-restaurant experience, as drivers will pick up orders curbside in the same manner our guests do today. This delivery-as-a-service further enhances the takeout experience for our guests, which is why we will have the same everyday value menu price for dine-in, pickup, or delivery. The added cost for delivery will be transparent to the guest and with Uber's technology platform, guests will be able to track their order all the way to their delivery address. Overall, we view this as an incremental long-term sales driver. This is first-party delivery, not third-party delivery marketplace. It will take time for us to build sales. We intend to roll it out initially only at Olive Garden to learn and will pilot at a limited number of Olive Garden restaurant locations in the second quarter. Assuming a successful pilot, we plan to begin a phased rollout to all Olive Garden locations that currently offer curbside ToGo. To wrap up, I am confident in the actions all our brand teams are taking to address our guest needs in this environment.

Raj Vennam, CFO

Thank you, Rick, and good morning, everyone. First-quarter earnings results were lower than our expectations, as a result of the sales softness that impacted the industry in July. June same-restaurant sales trends were in line with our fiscal 2024 fourth-quarter results, and we were surprised by the significant step down in traffic beginning with the 4th of July holiday. However, sales trends rebounded in August, resulting in flat same-restaurant sales for the month. The first three weeks of September have further improved, resulting in positive same-restaurant sales quarter-to-date for all of our segments, except fine dining. Despite the sales softness we experienced during the first quarter, we delivered industry-leading margins and generated more adjusted EBITDA than the prior year, highlighting the durability and cash generation of our business model. In the first quarter, we generated $2.8 billion of total sales, 1% higher than last year, driven by the addition of 42 net new restaurants and partially offset by negative same-restaurant sales of 1.1%. We outperformed the industry again this quarter, with same-restaurant sales that were 140 basis points better than the industry and same-restaurant guest counts that exceeded the industry by 160 basis points. Our gap to the industry improved from the prior quarter, driven by the outperformance of LongHorn and the brands in our other business segment. Adjusted diluted net earnings per share from continuing operations were slightly below last year at $1.75. We generated $392 million of adjusted EBITDA and returned $338 million to our shareholders this quarter, paying $166 million in dividends and repurchasing $172 million in shares. Now looking at our adjusted margin analysis compared to last year, food and beverage expenses were 50 basis points lower, as commodities were only slightly inflationary for the quarter. Restaurant labor was 20 basis points higher as total labor inflation of approximately 4% was above our total pricing of approximately 2.5%. This unfavorability was partially offset by productivity improvements at our brands. Restaurant expenses were 30 basis points higher than last year, driven by sales deleverage. Marketing expenses were 20 basis points higher, consistent with our expectations. All of this resulted in restaurant level EBITDA of 18.8%, 20 basis points lower than last year. Adjusted G&A expenses were 20 basis points favorable due to lower incentive compensation accrual compared to the first quarter last year. This favorability was partially offset by unfavorable mark-to-market expense on our deferred compensation. Due to the way we hedge mark-to-market expense, this unfavorability is largely offset in the tax line. Interest expense increased 30 basis points due to the financing expenses related to the Ruth's Chris acquisition. Our adjusted effective tax rate for the quarter was 10.6%. The rate favorability to last year is driven by the mark-to-market hedge I referenced earlier, along with the additional favorable tax planning actions. Our effective tax rate would have been approximately 12% without the impact of mark-to-market. In total, we generated $209 million in adjusted earnings from continuing operations, which was 7.6% of sales. Now looking at our segments for the quarter. Total sales for Olive Garden decreased by 1.5% due to negative same-restaurant sales of 2.9%, underperforming the industry benchmark by 40 basis points. Last year, Olive Garden same-restaurant sales were 6.1% in the first quarter. On a two-year basis, Olive Garden has grown same-restaurant sales by 3.2%, exceeding the industry by 480 basis points over that period. Olive Garden continues to have strong segment profit margin, delivering 20.6% for the quarter. At LongHorn, total sales increased 6.5%, driven by same-restaurant sales growth of 3.7%, outperforming the industry by 620 basis points and continuing to gain significant share even in this deep discounting environment. These results build on strong results from Q1 last year, where they had same-restaurant sales of 8.1% and outperformed the industry by 720 basis points. The LongHorn team is doing a great job of staying focused on their strategy and maintaining momentum within their business. Sales growth and favorable beef costs resulted in segment profit margin of 17.9%, 40 basis points above last year. Total sales at Fine Dining segment increased 2%, driven by the addition of eight net new restaurants. Same-restaurant sales at both Capital Grille and ADVs were negative as the fine dining category as a whole continues to be challenged. This resulted in lower segment profit margin than last year. The other business segment sales declined slightly, driven by negative same-restaurant sales of 1.8% for the brands in the segment. However, this segment outperformed the industry benchmark by 70 basis points and is continuing to gain share even in this intensified promotional activity in the industry this quarter. This morning, we reaffirmed our guidance, taking into consideration actual performance year-to-date and the initiatives Rick shared to support the remainder of the fiscal year. Now I'd like to provide a brief update on the pending Chuy's acquisition. We're currently on track to close in mid-October assuming approval from Chuy's shareholders. We have secured financing to support the closing. The team that successfully led the Ruth's Chris integration is ready to bring their expertise and lessons learned to this integration. As we mentioned on the announcement call in July, we anticipate the transaction will be neutral to our adjusted earnings per share for this fiscal year, excluding transaction and integration-related expenses.

Operator, Operator

Our first question today is coming from Brian Bittner from Oppenheimer.

Brian Bittner, Analyst

Thank you. Good morning. As it relates to the Uber partnership, I'm just curious, have you guys conducted an analysis on how impactful this could be for Olive Garden, once fully rolled out, and are there plans or options to add more partners or will this be an exclusive partnership for some period of time?

Rick Cardenas, CEO

Brian, we'll learn quite a bit from the pilot, but we do have some estimates from Uber that are pretty significant. We're just not assuming that, but we do expect the incrementality to grow over time. In terms of other partnerships, we have a two-year exclusive with Uber, but we have the ability to expand it to other brands if we'd like, if it works for Olive Garden. But right now, we're focusing on Olive Garden, we're focusing on getting the restaurants that are piloting up and running. The technology is almost finished and this is fully integrated into our system. That's one of the reasons that we've spent some time to make this work, but it's a two-year exclusive and then we have options after that.

Brian Bittner, Analyst

Okay. Thank you. And my follow-up just on the sales side, what's driving the improvement in September? And just curious on Olive Garden, you've talked about taking less price in the industry and that you want to showcase more price points in advertising, but you've seen some great success by some of your peers that are striking gold with creative promotions. I'm just curious how you're thinking about promotions moving forward and the opportunity to use that lever?

Rick Cardenas, CEO

Hey, Brian. In September, we're seeing increases, I think, in the industry as well. All of our performance is contemplated in our guidance for the month of September and for the rest of the year. In terms of promotion and things that we're looking at for Olive Garden, Olive Garden, and Olive Garden, I'll start by saying I'm really proud of the work that Dan and his team have done over the years. They continue to price below inflation as you know. But one of the challenges is, in this environment, consumers are looking for a little bit more price certainty. We've seen a little bit of a decline in first-time guests at Olive Garden. They might not realize that we've taken so much less pricing than everybody. So, we've reacted and we're going to add some more price points throughout the year. Yes, you did mention that others might be showing some benefit with some deep discount, limited-time offers. We're going to showcase our price points throughout the year in different ways. Some of them are limited-time like Never Ending Pasta Bowl; others are just talking about the great value we already have, but being more prominent. That said, all of our marketing filters are intact, and we may have some limited-time offers in the back half of the year, but they will still fit our filters of being simple to execute, not at a deep discount, and continuing to strengthen our competitive advantages. They'll just be things that help to motivate guests to get to the restaurant, while those things are still in the restaurant.

Operator, Operator

Next question is coming from Brian Harbour from Morgan Stanley.

Brian Harbour, Analyst

Yes. Thank you. Good morning. Maybe just also on Uber. Is there no pilot at other brands contemplated in '25? Do you think that would perhaps come in '26 or how would you treat kind of the rest of Garden?

Rick Cardenas, CEO

Brian, right now we're focusing on Olive Garden. We do have the ability to pilot other brands even in this fiscal year. We just want to make sure that the systems work, that we have a pretty seamless experience for our guests and for the drivers and for our team members, so that we know this works really well. And then we have the ability to pilot at other brands.

Brian Harbour, Analyst

Okay, great. Thank you. Rick, can you maybe just talk a little bit more also about the service opportunity or kind of that focus on speed and pace of meals? What specifically do you think could change there? Is that more of a lunch comment or sort of like shoulder period comment, how would we kind of see that over time?

Rick Cardenas, CEO

Yes, Brian. This isn't just a throughput challenge. This is a guest needs state challenge. The world has gotten faster, people can get on their phones and order something and it will show up on their door in a few hours. They’ve got other options to dine, and the full-service restaurant category hasn't really gotten faster. We believe there's opportunities for us to speed up our experience without making the guests feel rushed. We're going to do that. And so, this is going to take a while. Now, some of these speed initiatives or these initiatives will help throughput earlier on. But what we're trying to do is capture that occasion where the guest has a little less time to eat than they did 10 years ago. They don't believe they can do that at a full-service restaurant. We believe they can. If you look at guests in full-service, not just at Darden, but in full-service restaurants, their speed scores are unfavorable. When they talk about going to a full-service restaurant and talk about speed, it's inherently dissatisfying. We don't really get a whole lot of comments about being too fast. So we want to change that, and we’re going to be doing that over the years.

Operator, Operator

Next question today is coming from Jon Tower from Citi.

Jon Tower, Analyst

Great. Thanks for taking the question. Just to hammer more on Uber Eats. I am curious if you could speak to your plans for advertising, the option for delivery and specifically do you plan to advertise on the Uber Eats platform for the brand?

Rick Cardenas, CEO

We do not plan on advertising on Uber Eats for the brand. But that said, as we have options to market to consumers, we actually have marketing funds from Uber to help us do that. And as we reach scale, we can leverage other marketing channels to drive consumers to our websites and our mobile apps. But when a consumer goes to place a ToGo order on our apps or on our mobile website, they will have the option at that time for delivery.

Jon Tower, Analyst

Got it. Just a quick follow-up on that and then another question. In terms of Uber, is this contemplated in guidance, this relationship for fiscal '25? And then, the question is on the time improvements that you mentioned earlier, do you think this will require greater investment in technology and/or staffing at the stores?

Rick Cardenas, CEO

On the Uber side, everything that we know this morning is contemplated in guidance. Again, the Uber first-party delivery is going to take a while to build. We're going to pilot it. We're going to see how that works. Then our plan is to have it rolled out at all Olive Garden by the end of this fiscal year. So that'll give you an idea of how much we expect it to be in this fiscal year. Now if it goes really well and it does a lot more than we think, then, yes, we've got a little bit of room there. But if it doesn't, we think it's going to take a little while. So we'll stick with that. Everything we know is contemplated in our guidance. Yes, on the speed side, yes, we make investments in technology all the time. We’re working on our tech roadmap now over three years and one of the things that we're talking about is how do we help the restaurants go get a little faster, but it doesn't necessarily need a lot of technology. Our focus is to work on our operations to improve the speed and then if we need to add technology behind it to do that.

Operator, Operator

Next question is coming from Eric Gonzalez from KeyBanc Capital Markets.

Eric Gonzalez, Analyst

Thanks for the question. You talked a little bit about the price point advertising at Olive Garden. You're still spending well below what you used to spend in the past. I'm just curious what your thoughts are around maybe increasing the level of spend to put a bit more pressure on your competitors?

Raj Vennam, CFO

Eric, I think we want to be thoughtful about how we do marketing and you saw that when we find that there is something that we can get a return on, we're willing to make the investment. It's not that there is any constraint on the spend. It's more about, do we think we can get the return on it and we are just being more methodical. We've always said we are playing a long game. We're not trying to just win in the short term. We're trying to focus on the long-term health of the business and how do we build it over time. If there are ways where we can say that we can accomplish that objective by spending more in marketing, we're willing to do that.

Eric Gonzalez, Analyst

Okay. And then, if I could just ask about fine dining, I'm just curious what's driving the downtick in that business and maybe when you expect that business to recover?

Raj Vennam, CFO

Yes. I think from a fine dining standpoint, it's been a continuing challenge as we got into the summer months. There were a lot of factors in the summer, including some international travel and things like that. We do expect a gradual build back. I don't know that we have an exact timing of when that's going to happen. But there is a clear difference between suburban markets and urban markets. We are still operating close to that mid-70s in the pre-COVID levels in the urban markets, while suburban markets are in the more of the 90s in terms of retention to pre-COVID. And so, when we look at income, people all the way up to $200,000 and below were seeing pullback. And so, that's the other part of the fine dining impact.

Operator, Operator

Next question today is coming from Jeffrey Bernstein from Barclays.

Jeffrey Bernstein, Analyst

Great. Thank you very much. Rick, my first question was just following up on the sales trends for both yourself and the industry. I think you talked about the July weakness, an improvement since then. We know that Olive Garden has that catalyst of the earlier launch of the Never Ending Pasta Bowl. But I just wanted to see the trends of the other brands since July, would you assume that just the broader industry and therefore all your brands have seen improvement? If so, I'm just wondering what do you think was the industry shock of July and maybe your confidence that the worst is behind us?

Rick Cardenas, CEO

Yes. If you look at what happened to the industry and to our brands, June and August were pretty similar to each other, both in the industry and our brands. And then, all of a sudden the industry kind of fell off a little bit in July. We think it’s driven by a few things. There was some pretty interesting weather in the month of July with a lot of storms, hurricanes, tornadoes. We had the Olympics in July, which we expected the Olympics to be not too dramatic to us, but it was the highest opening day, opening ceremony rating in over a decade. COVID had increased in July with an uptick there. International travel saw a lot more international travel out than in, and so there were a lot of factors in July. But, we picked back up in August, and all of our brands are continuing that trend, even the guidance that we have for the rest of this year and everybody's talking a little bit about Olive Garden pickup because of Never Ending Pasta Bowl, but all our brands are getting better.

Jeffrey Bernstein, Analyst

Understood. And then just following up on the promotional activity. Obviously, the peers have been more aggressive. You've avoided that. The earlier launch of the Never Ending Pasta Bowl seems like it's an indication of your desire or willingness to better compete, but like you said, it's still profitable. But I think you mentioned some LTOs or some more LTOs in the second half of fiscal '25. I'm just wondering specifically what that might entail whether it's you're talking about Olive Garden or other brands, because again I know you mentioned you're not going to compromise the long-term health for short-term benefits. But just trying to get a sense for what that could entail in terms of an uptick in LTO activity in the back half of the year?

Rick Cardenas, CEO

Yes. As we've said, in this environment, we think it's appropriate to highlight the great value. Last year, we were spending most of our marketing dollars in promotional messaging on equity building. Because we've priced so much lower than the industry over the years, we want to make sure people understand that price point. By bringing back fan favorites, whether at a limited time or on their core menu, they're simple to execute and improvements for what they had before. This will give guests a little bit more compelling reasons to visit. This isn't a return to constant deep discount promotions that add significant cost. What we're talking about in any limited-time offer is something that's very simple to execute; it's just limited time to have guests know that they have to get there.

Operator, Operator

Next question is coming from David Palmer from Evercore ISI.

David Palmer, Analyst

Thanks. Good morning and congrats on this delivery test and getting this done with the parameters you wanted, including the menu prices being the same as your everyday menu. I wonder what will that delivery fee be upon checkout that you're seeing as a consumer, given that your menu prices will be the same? Will that fee get you back to a margin equivalent to a takeout order?

Rick Cardenas, CEO

Yes, David. I want to be clear on the delivery fee. That’s going to be paid by the guest. While they see the menu price is the exact same menu price they see everywhere else. They will also see what will it cost them to have someone else pick up the food and bring it to them versus them coming to get it themselves. On a typical Olive Garden order, it'll probably be somewhere around $7 to have their food delivered to them versus picking it up themselves, and then not including the tip. By the way, that tip will be shared with our team members.

Raj Vennam, CFO

I just want to clarify that the margin percentage might vary slightly because the delivery fee could be recorded as revenue, which would affect the restaurant expenses. However, it needs to be significant enough to impact the overall percentage. This is just a nuance related to the different accounting methods used.

David Palmer, Analyst

I just have a follow-up. I just wanted to get your latest thinking and latest diagnosis about Olive Garden relative to the industry, which of course is a contrast to LongHorn, which is still actually at an accelerated basis outperforming. Is there anything that is clear to you in the customer satisfaction scores that you're seeing that is telling about an opportunity with Olive Garden?

Rick Cardenas, CEO

Yes, David. I think what we're seeing at LongHorn is their in the steak category. Many people don't want to risk buying steak in the grocery store and preparing it incorrectly, so they might as well go to a restaurant and have them take the risk of the preparation. Our data supports that people are trading down into steaks from fine dining. On the Olive Garden front, we've seen a little less influx of first-time guests or very infrequent users. Our data says that we're not really losing guests, as they haven't shifted much and neither have our other brands. They're taking share from others.

Operator, Operator

Next question is coming from David Tarantino from Baird.

David Tarantino, Analyst

Hi. Good morning. Rick, I had a question about the Uber Eats or I guess Uber Direct relationship. My question is on the decision to make this primary or solely a first-party relationship and not offer Olive Garden on their marketplace. Just wondering why that decision and would you ever be open to a deal that puts your brands on their marketplace?

Rick Cardenas, CEO

Yes. The incrementality has to be really big to offset the $1 billion that we're doing in ToGo sales at Olive Garden. We believe that a lot of guests come to our website directly and they want delivery. So for now, we’re going to focus on this. If things change, David, and we think there's another option for us to be on the marketplace, then we have the ability to do that.

Operator, Operator

Next question is coming from Chris O'Cull from Stifel.

Chris O'Cull, Analyst

Thanks. Good morning, guys. Raj, Olive Garden segment margin looked slightly below, I think, 2019 levels and maybe it was down obviously year-over-year. Can you talk about what drove that result?

Raj Vennam, CFO

Yes, Chris. I think it really starts with the sales. When you think about the way their same-restaurant sales were when you have a negative 3%, there's a lot of deleverage. The unexpected step down in July really made it harder for us to react and adjust our costs. Our teams do a great job of forecasting the business and managing costs really well. However, July was surprising to us and none of our models would have predicted the type of step down we had in July. That just made it a little more challenging.

Chris O'Cull, Analyst

That makes sense. And then, I know you're still targeting earnings growth, I guess call it 6% to 8% for the year, but is there anything we should be thinking about in terms of earnings cadence over the balance of the year?

Raj Vennam, CFO

Yes, Chris. I think for us when we look at it, it's probably in that mid to high single digits for the next three quarters. There may be a little bit of movement from quarter to quarter. One of the things we mentioned earlier when we provided guidance was that the second quarter will have a little bit of a benefit because of Thanksgiving shifting out of the Q2 into Q3 on sales and you would expect some of that to flow through.

Operator, Operator

Next question is coming from Jim Salera from Stephens.

Jim Salera, Analyst

Hi, guys. Good morning. Thanks for taking our question. I wanted to ask on, if you had a sense for what percentage of your Olive Garden guests already have the app downloaded?

Rick Cardenas, CEO

Hey, Jim. I want to be clear that there's other ways to order ToGo at Olive Garden, and about over 60% of our ToGo orders are already digital, whether it's through our online platform or our mobile app. There’s a good percentage of our guests. But we are focusing on enhancing the app experience, and we’ll see what we can do to market the app more.

Jim Salera, Analyst

Okay. And then, can you just give us the traffic check and mix components for Olive Garden and LongHorn for the quarter?

Raj Vennam, CFO

At Olive Garden, our pricing was just south of 2%. They were like 1.9% for the quarter. They had a little bit of a positive mix in the mid-5% for traffic, negative mid-5%. And then LongHorn had positive traffic of 0.7%. Their check growth was 3%. I think their pricing was really close to that maybe in the high 2%.

Operator, Operator

Next question is coming from Jake Bartlett from Truist Securities.

Jake Bartlett, Analyst

Great. Thanks for taking the question. Rick, since all the changes since COVID, I think the question for investors has been what stays around? What are the big changes you made? What remains? And what caught my attention was some of the add backs on the menu. You mentioned adding a couple of items back at Olive Garden. The question is, is the menu simplification kind of reversing here a little bit? Are you going to be making efforts to take items off as you add old ones back?

Rick Cardenas, CEO

Yes, Jake. We're very committed to keeping the menu simple. All of our brands have really high bars to add items. The items that we have added fill a hole in the menu. It’s really simple to execute. We're clear that the menu simplification we did was the right thing for us, but we do know that we have to continue to innovate on the menu and when we add items, we take items off.

Jake Bartlett, Analyst

Another question or follow-up is on pricing and some of the inflation that you’re seeing. In the last call, you mentioned 2.5% to 3% pricing for '25. I think the first quarter here was at 2.5%. So is that the right way to think about pricing for the rest of the year, that it remains at the lower end of that range? And the other part of the question is on the operating cost inflation.

Raj Vennam, CFO

Yes, Jake. We expect to be in the range of 2.5% to 3% for any given quarter. We do not foresee any quarter exceeding 3%, but a range of 2.7% to 2.8% in certain quarters is probable. However, not all pricing is secured yet, so we will monitor where the costs land.

Jake Bartlett, Analyst

Understood. Just a quick follow-up, when you did normalize that price point back to $12.99, did you notice any consumer reaction good or bad?

Rick Cardenas, CEO

Yes, we did. It performed better than it was doing at 13-plus. Preference went up a little bit. And our performance in June was better than it was in May at Olive Garden.

Jim Sanderson, Analyst

I wanted to go back to the discussion on pricing. I think that you had taken down your create-your-own pasta promotion price point by about 4% over the summer. Just wondering if you could tell us a little bit more about how that worked out in the quarter and whether you expect to feature more discounted promotions going forward similar to what we saw over the summer.

Rick Cardenas, CEO

Jim, if you think about create-your-own pasta, we had priced it up kind of late in the last fiscal year to, I think, a little bit over $13. We thought it makes sense at $12.99. We still took our pricing across. Now, in the future with it, we believe it's going to stay around that price point. But, we'll continue to refresh that offer and continue to provide reasons for guests to come.

Raj Vennam, CFO

We haven't changed our guidance from before the call, which was approximately $450 million. With the first quarter being $125 million, you can expect the rest to be more in that $105 million to $110 million in any given quarter.

Operator, Operator

Next question is coming from Brian Vaccaro from Raymond James.

Brian Vaccaro, Analyst

Just 2 quick ones for me. On your existing off-premise business at Olive Garden, can you remind us what percent of that is small order takeout versus larger group or catering type orders?

Rick Cardenas, CEO

Yes. It's about 80% small order and about 20% catering type orders.

Brian Vaccaro, Analyst

Okay, great. And just to clarify on your comments on Never Ending Pasta Bowl, Rick, did you say that the overall sales mix on NEP was up? Or was that trade-up adding on proteins that was up?

Rick Cardenas, CEO

Yes. I would say 2 things. One, the overall preference is up slightly for Never Ending Pasta Bowl. In some markets, it’s definitely up; the trade-up is up more than our overall preference. About 60% to 65% of the people order the protein on top of the pasta, which is up versus last year.

Operator, Operator

We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Courtney for any further or closing comments.

Courtney Aquilla, Investor Relations

That concludes our call. I want to remind you that we plan to release the second quarter results on Thursday, December 19, before the market opens with the conference call to follow. Thank you for participating in today's call.

Operator, Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.