What Led to the Expansion of Darden’s EBIT Margin in Q3 2019?

Third-quarter margins

Darden Restaurants’ (DRI) EBIT margin improved from 11.3% in the third quarter of fiscal 2018 to 11.8% in the third quarter of fiscal 2019.

Declines in labor expenses, restaurant expenses, and G&A (general and administrative) costs drove the company’s EBIT margin, which was partially offset by an increase in food and beverage costs.

What Led to the Expansion of Darden’s EBIT Margin in Q3 2019?

During the quarter, Darden’s food and beverage expenses increased by 0.1% of total revenue due to commodity inflation and an unfavorable mix, whereby customers opted for higher-priced items with a higher cost of sales.

Favorable pricing, sales leverage, improvements in productivity, the opening of new restaurants, and a decreased labor force more than offset labor inflation of 3.5% to lower the company’s labor expense by 0.4% to 31.7% during the quarter. Other restaurant expenses fell 0.1% to 16.9% due to sales leverage. The company’s marketing expenses stood flat at 2.8% of its total revenue.

The company’s G&A expenses fell 0.3% to 4.6% due to sales leverage, strong cost management, and favorable mark-to-market expenses during the quarter compared to the corresponding quarter of the previous year.

Peer comparison

During the comparable quarter, Texas Roadhouse (TXRH), Brinker International (EAT), and Bloomin’ Brands (BLMN) posted EBIT margins of 7.6%, 6.7%, and 4.3%, respectively.

Next, we’ll look at Darden’s EPS in the third quarter.