By Lisa Baertlein and Atossa Araxia Abrahamian
Sept 20 Darden Restaurants Inc reported
dismal quarterly results on Friday as the casual dining
restaurant sector that includes its Olive Garden and Red Lobster
chains turned in its weakest sales at established restaurants in
more than three years.
Shares in Darden slid 5.5 percent to $46.61 in midday
trading after analysts said the company's lowered restaurant
sales forecast for the full fiscal year appeared too rosy amid
intensifying discounting by Darden's key rivals.
An uneven economic recovery, higher taxes and tough
competition from limited-service chains like Chipotle Mexican
Grill Inc and Panera Bread Co - where tipping
is not required and diners often spend less for meals - have
taken a bite out of business at Darden and other casual chains.
Signaling increased emphasis on its more upscale and "hip"
chains that draw wealthier and younger diners, Darden said that
long-time executive Drew Madsen would retire at the end of the
current quarter. He will be succeeded by Gene Lee, now president
of Darden's Specialty Restaurant Group that includes chains such
as Seasons 52, the Capital Grille and Yard House.
"The (casual dining industry's) results this summer are
further evidence that we can expect sharper sales volatility as
the slow and uneven recovery in the economy persists," Darden
Chief Executive Clarence Otis said.
The Orlando-based company said it plans to cut $50 million
in operating costs per year starting in fiscal 2015. That effort
includes laying off 85 support staff, Otis said during the
company's earnings call.
Darden's net income fell 37 percent to $70.2 million, or 53
cents per share, in the first quarter ended Aug. 25.
Analysts on average were expecting earnings of 70 cents per
share, according to Thomson Reuters I/B/E/S.
Otis predicted consumers would remain cautious about
spending and said Darden would continue to search for the right
mix of promotions to fuel more business.
Sales at Olive Garden restaurants open at least 16 months
fell 4 percent in the latest quarter, a sharper drop than the
1.2 percent fall expected by analysts polled by Consensus
Metrix. Olive Garden traditionally has accounted for almost half
of Darden's overall revenue.
Combined same-restaurant sales at Olive Garden, Red Lobster
and LongHorn Steakhouse, Darden's "Big Three" chains, fell by
Same-restaurant sales at the company's Specialty Restaurant
Group were slightly better, rising 0.5 percent.
Darden repeated its 2014 forecast for a 3 percent to 5
percent decline in earnings, excluding special items, from $3.13
per share posted in fiscal 2013.
It now expects same-restaurant sales to be flat vs a year
ago. Darden previously had called for those sales to be flat to
up 2 percent.
Lazard Capital Management restaurant analyst Matthew
DiFrisco called that revised outlook "optimistic."
Darden's same-restaurant sales "targets assume a rebound yet
trends remain volatile, and presuming a recovery at this time
could prove premature," DiFrisco said.