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UPDATE 2-Economic concerns pressure Olive Garden parent Darden
June 21, 2013 / 5:00 PM / 4 years ago

UPDATE 2-Economic concerns pressure Olive Garden parent Darden

* Company sees slow economic recovery hurting its business

* Expects fiscal 2014 earnings per share to fall 3-5 pct

* 4th-quarter earnings $1.01/share vs estimate $1.03

* Shares down 4 pct (Recasts with warning on outlook; adds analyst comment, updates stock activity)

June 21 (Reuters) - Darden Restaurants Inc warned on Friday that a slow, uneven U.S. economic recovery could hurt business at its Olive Garden, Red Lobster and other chains, painting a somewhat bleak picture of the prospects for middle-income Americans.

The cautious outlook and a lower-than-expected quarterly profit overshadowed strong sales and sent Darden shares down 4 percent in midday trading.

Higher payroll taxes and gasoline prices have reduced customer traffic at Darden restaurants. To lure diners, the company has expanded lower-priced offerings on its menus and beefed up promotions.

More and more restaurants, including McDonald’s Corp , have been emphasizing value-priced meals. While the Federal Reserve painted a fairly upbeat picture of the U.S. economy earlier this week, some consumers remain cautious due to factors such as higher taxes and the 7.6 percent unemployment rate.

Darden Chief Executive Clarence Otis said many of his company’s patrons “will continue to need and expect us to emphasize affordability.”

He expects a “slow and uneven recovery in both the overall economy” and the restaurant industry in fiscal year that began late last month, impacting how often customers visit and how much they spend.

Still, Otis was somewhat optimistic, calling results in Darden’s fiscal fourth quarter “an encouraging end to a difficult year.” Same-restaurant traffic - traffic at restaurants open at least 16 months - increased for the first time in several quarters.

Darden expects same-restaurant sales on a combined basis for its large chains - Olive Garden, Red Lobster and LongHorn Steakhouse - to be flat to up 2 percent in the current fiscal year, with same-restaurant traffic flat to up 1 percent.


Net income for the fiscal fourth quarter ended May 26 fell to $133.2 million, or $1.01 per share, from $151.2 million, or $1.15 per share, a year earlier.

Analysts on average expected $1.03 per share, according to Thomson Reuters I/B/E/S.

Darden expects fiscal 2014 earnings to be down 3 percent to 5 percent from the $3.13 per share posted in fiscal 2013.

Same-restaurant sales at Olive Garden, its biggest chain, rose 1.1 percent in the fourth quarter. Analysts polled by Consensus Metrix expected a fall of 0.8 percent.

Overall same-restaurant sales, which include Olive Garden, Red Lobster and LongHorn Steakhouse, rose 2.2 percent.

Total sales rose 11 percent to $2.29 billion, topping analysts’ expectations of $2.27 billion. Sales at Olive Garden rose 5.3 percent to $952 million.

Darden said it was increasing its quarterly dividend by 10 percent, to 55 cents per share.

The company’s shares were down $2.05 to $49.18 at midday.

Darden, headquartered in Orlando, Florida, operates more than 2,000 restaurants nationwide. Its smaller chains include Bahama Breeze, Seasons 52, Capital Grille, Eddie V‘s, and Yard House. (Reporting by Siddharth Cavale in Bangalore and Jessica Wohl in Chicago; Editing by Joyjeet Das and John Wallace)

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