Michelle Korsmo was in a bind.
Korsmo, CEO of the National Restaurant Association, had written to President Donald Trump last month, warning about how his proposed tariffs would hurt the industry.
The trade group said the 25% tariffs on food and beverage products imported from Mexico and Canada could cost the restaurant industry as much as $12.1 billion, resulting in a 30% profit loss for the average independent restaurant operator, Restaurant Business reported on Feb. 25.
“These numbers are staggering to an industry that deals in real time with fluctuations in commodity prices,â she said.Â
âRestaurants arenât like other small businesses,” Korsmo explained. “They run on tight pretax margins that average 3% to 5% and they have, on average, 16 days cash on hand. Significant cost increases are not sustainable for most restaurants.âÂ
Trump has imposed 20% levies on all imports from China and has threatened, but delayed until April, duties on most imports from Mexico and Canada, as part of a demand that the three countries help stanch the flow of fentanyl into the U.S..
Olive Garden’s parent is preparing to report fiscal-third-quarter results.
Darden CEO: Brands focused on long-term
Korsmo urged Trump to exempt food and beverage products from any plan to impose tariffs on Canada and Mexico if he feels that such taxes are necessary.
The economic news has been rather grim.
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The tariff hikes will drag down growth in Canada, Mexico and the U.S. while driving up inflation, the Organization for Economic Cooperation and Development said, according to Reuters.
The Paris policy forum said that U.S. households would pay a high direct price from the new import taxes, and the likely economic slowdown will cost the U.S. more than the extra income the tariffs are supposed to generate.
In addition, U.S. retail sales remained sluggish last month, the Commerce Department said on March 17, amid a broader pullback in consumer spending and overall sentiment tied to Trump’s tariff and budget-cutting policies.
Within the restaurant industry, the big chains might be better positioned to absorb some of the increased costs due to their larger scale and purchasing power.
Rick Cardenas, president and CEO of Darden Restaurants (DRI) , said in December that the restaurant chain operator could adapt to the economic climate.
The Orlando, Fla., company owns such brands as Olive Garden Italian Restaurant, LongHorn Steakhouse, Bahama Breeze, Seasons 52, Eddie V’s and Capital Grille.
“I continue to believe in the power of our strategy and our brands’ ability to compete effectively regardless of the environment,” he said after the company posted quarterly results in December. “Each of our brand leadership teams are focused on the long term.”
Darden has more than 1,800 locations and more than 175,000 employees, making it the world’s largest full-service restaurant company.
Analyst says Darden stock has outperformed
The company is scheduled to report fiscal-third-quarter results on March 20. Its shares are down slightly year-to-date and up 8.3% from a year ago.
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Truist analyst Jake Bartlett raised the investment firmâs price target on Darden to $212 from $200 and affirmed a buy rating on the shares.Â
The setup into the Q3 results is âmodestly positiveâ with an earnings miss more than offset by accelerating recent comparables, the analyst told investors in a research note.Â
The stock has outperformed year-to-date, and the firm expects this to continue even if restaurant demand softens, Bartlett added.
Deutsche Bank’s Lauren Silberman on March 11 said she expected Darden to miss Wall Street’s forecasts, given soft industry trends in January and February.
However, Silberman, who has a buy rating and $217 price target on the shares, said this was well-known and likely to be looked through since same-store sales have improved quarter-to-date. Same-store sales are from restaurants open at least a year.
The analyst said continued momentum is visible as Olive Garden executes a more aggressive strategy with increased value-focused advertising and contributions from its Uber (UBER)  partnership.
In September, the companies unveiled a multiyear partnership where customers would be able to order delivery by Uber Direct through Darden restaurant channels.
“We believe DRI offers a favorable setup into 2025, supported by increased visibility to the path to reaccelerate same-store sales, reasonable valuation, potential upside to numbers, [and] potential catalysts from the expansion of Uber to additional brands,” Silberman said.
She also cited an experienced management team “with a proven track record of operational execution offering confidence in the achievability of the earnings algorithm.”
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