Darden shares soar as Uber deal overshadows earnings shortfall
2min read Darden Restaurants (DRI) reported its fiscal first-quarter earnings, which fell short of analyst expectations, but shares surged in premarket trading due to the announcement of a significant partnership with Uber. The company posted adjusted earnings per share (EPS) of $1.75, missing the consensus estimate of $1.83, and reported sales of $2.76 billion, slightly below the expected $2.79 billion. Despite the disappointing earnings, the market reacted positively to the news of a new delivery partnership with Uber, driving Darden's stock up by over 9% in early trading.
Sales growth was modest, increasing by 1% year-over-year, primarily driven by new restaurant openings, while same-restaurant sales across its brands, including Olive Garden, fell by 1.1%. Olive Garden itself saw a 2.9% decline in same-store sales, contributing to the overall weaker earnings performance. Nevertheless, Darden maintained its full-year guidance, expecting EPS between $9.40 and $9.60, indicating confidence in its long-term strategy despite the challenges faced in the first quarter.
The highlight of the announcement was the multi-year exclusive delivery partnership with Uber, starting with Olive Garden in late 2024. This deal marks a strategic shift for Darden, which has historically avoided third-party delivery services to protect its margins and service quality. The partnership with Uber is significant as it aligns with consumer demand for convenience and expands Olive Garden's reach, potentially boosting sales as the service rolls out to more locations nationwide by mid-2025.
This move is crucial for Olive Garden, especially after reporting a drop in same-store sales. By partnering with Uber, Darden can tap into Uber's extensive delivery network while retaining control over the ordering process through its own website and app. This approach allows Darden to maintain its brand standards while benefiting from Uber’s logistical expertise, addressing a growing consumer preference for home delivery without eroding profitability.
Moreover, this partnership could help Darden better compete with other restaurant chains that have embraced third-party delivery services, especially as consumer behavior continues to evolve post-pandemic. With Uber providing delivery services, Olive Garden can focus on enhancing customer experience and maintaining competitive pricing, which could drive growth in a segment that has been challenging.
The market's positive reaction to the Uber deal, despite the underwhelming earnings, underscores the importance of innovation and adaptation in the restaurant industry. Investors appear optimistic that this strategic partnership will help Darden overcome current headwinds and position the company for stronger growth in the future.
In summary, while Darden’s Q1 earnings were below expectations, the announcement of the Uber partnership was well-received by the market, signaling a potential turnaround for the company. As the delivery service expands and integrates with Olive Garden’s operations, Darden could see improved sales performance, justifying the stock's rise and bolstering investor confidence in the company's ability to navigate a challenging environment.