Olive Garden value focus helps Darden profit, shares up
(Reuters) - Darden Restaurants Inc (DRI.N) reported better-than-expected quarterly profit, helped by its first rise in sales at established Olive Garden restaurants in six quarters, and shares were up almost 5 percent after touching an all-time high.
Olive Garden generates almost half of Darden's revenue and executives on Friday said the Italian food chain's operating profit and margin rose in the fiscal first quarter, even as the chain moved toward more value-oriented pricing.
Darden, traditionally a top performer among full-service restaurant operators, was slow to adopt the promotions and other deals that rivals DineEquity Inc's (DIN.N) Applebee's and Brinker International Inc's (EAT.N) Chili's Grill & Bar embraced.
It changed strategy after rivals began chipping away at its lead and traffic to Olive Garden flagged. Darden has been working to fix marketing at Olive Garden for more than a year.
Olive Garden's same-restaurant sales were up 0.3 percent for the quarter that ended August 26. But the company still needs to lure more diners to the chain, which saw visits fall in both June and August.
"Darden remains under pressure to show that it is capable of executing a sustained course correction" for Olive Garden, Bernstein Research analyst Sara Senatore said in a client note.
Orlando, Florida-based Darden's net income rose 4 percent to $110.8 million, or 85 cents per share.
Excluding costs from its August acquisition of the Yard House bar and grill chain, Darden earned 86 cents per share - topping analysts' average estimate by 2 cents per share, according to Thomson Reuters I/B/E/S.
Olive Garden posted meaningful improvement in sales and margins in the quarter, Chairman and Chief Executive Clarence Otis said on a conference call with analysts. Darden also benefited from a year-over-year decline in seafood costs that helped offset a significant spike in the cost of beef, he said.
Darden's overall sales rose 4.8 percent to $2.03 billion and were in line with the analysts' target.
Darden's "Big Three" brands - Olive Garden, Red Lobster and LongHorn Steakhouse - saw a combined 0.3 percent decline in sales at restaurants open at least 16 months.
Red Lobster, which accounts for about one-third of company sales, will soon change its menu to include more items priced under $15.
Darden still expects total sales growth of 9 percent to 10 percent this year. It anticipates growth of 5 percent to 9 percent in net earnings per share from continuing operations, including acquisition-related costs and purchase accounting adjustments of about 7 cents to 10 cents per share.
Shares in Darden were up $2.48 to $57.20 in morning trading on the New York Stock Exchange.
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