* Forecasts second-quarter profit below Wall Street view
* Cuts fiscal 2013 profit forecast
* Shares drop nearly 11 percent
(Adds analyst comment, paragraphs 4-5; updates stock)
By Lisa Baertlein
Dec 4 Darden Restaurants Inc reported a
steep fall-off in business at its Olive Garden, Red Lobster and
LongHorn Steakhouse chains on Tuesday and lowered financial
expectations for the year, sending shares down 10 percent.
The company said it would revamp promotions in a bid to
attract more customers, but Chief Executive Officer Clarence
Otis said he remained cautious about forecasts given recent
results and planned changes.
The warning from Darden, which until recently had been one
of the restaurant industry's top performers, comes as industry
leader McDonald's Corp also has seen its U.S. results
falter amid a resurgence of formerly weak competitors.
Darden's second-quarter miss and tempered full-year
forecasts reflect both a challenging demand environment and
continued - and likely worsening - share losses, Bernstein
Research analyst Sara Senatore said.
"It looks like Darden is even weaker than the industry," she
said, noting that demand for meals at full-service restaurants
such as those Darden operates has deteriorated.
Darden's promotions did not "resonate with financially
stretched consumers as well as newer promotions from
competitors", Otis said in a statement.
"Our disappointing results for the quarter point to the need
for bolder changes in the promotional approach at our three
large brands," he said, adding the company would be "retooling"
such offers for the balance of the year.
Darden has struggled to find the right recipe for its Olive
Garden chain, which generates almost half of overall revenue.
The company was slow to adopt the promotions and other deals
that rivals such as DineEquity Inc's Applebee's and
Brinker International Inc's Chili's Grill & Bar
Other rivals include the Cheesecake Factory Inc and
Bloomin' Brands Inc, whose chains include Outback
Steakhouse, Carrabba's Italian Grill, Bonefish Grill and
Darden shares fell $5.66, or 10.7 percent, to $46.76 on the
New York Stock Exchange.
Shares in the company's rivals fell as well. Stock in
Cheesecake Factory was down 5 percent, Bloomin' Brands lost 4
percent, Brinker slipped 3 percent and DineEquity was off a bit
more than 1 percent.
Darden now expects net earnings from continuing operations
of 25 cents to 26 cents per share for the second quarter ended
Nov. 25. That includes a reduction of 5 cents per share related
to its purchase of Yard House USA Inc and a hit of 1 cent per
share from Hurricane Sandy.
Some analysts said that was significantly below Wall
Street's average estimate of 46 cents per share. A spokesman for
Darden said analysts were expecting a net profit of 42 cents per
share for the quarter.
Darden expects same-restaurant sales to be down 3.2 percent
at Olive Garden, off 2.7 percent at Red Lobster and down 0.8
percent at LongHorn Steakhouse for the quarter. It anticipates
that combined sales at those chains will fall about 2.7 percent,
versus the nearly 1 percent increase some analysts expected.
Based on the recent results and planned changes to Darden's
promotions, "we are being cautious about our sales and earnings
forecast for the full year", CEO Otis said.
The company lowered its full-year target for combined
same-store sales at Olive Garden, Red Lobster and LongHorn
Steakhouse. It now expects those combined sales to be flat to
down 1 percent, compared with its prior call for a rise of 1 to
Darden set its forecast for fiscal 2013 net earnings per
share from continuing operations at $3.29 to $3.49. That
includes 8 cents to 10 cents in charges related to the Yard
The company said its full-year targets also reflected the
potential impact of recent negative media coverage about its
moving some workers to part-time from full-time schedules in an
effort to hold down the cost of federal healthcare reforms.
In September, Darden said it expected fiscal 2013 net
earnings per share growth from continuing operations of 5
percent to 9 percent, including acquisition-related costs and
purchase accounting adjustments of about 7 to 10 cents per
share. That growth would have been off its fiscal 2012 earnings
of $3.58 per share.
Darden is scheduled to release final second-quarter results
on Dec. 20.
(Reporting by Lisa Baertlein in Los Angeles; Editing by Dale
Hudson and Leslie Gevirtz)