July 1, 2011 / 2:51 PM / 6 years ago

Darden eyes changes at Olive Garden, shares up

LOS ANGELES (Reuters) - Darden Restaurants Inc (DRI.N) is starting a new round of cost cuts and revamping its marketing and promotions to boost results at its Olive Garden chain, which generates about half its sales.

Darden will adopt a pricing tactic it used to turn around results at its Red Lobster chain, executives said on Friday, as new data suggested the economy may not be as weak as feared.

Bernstein Research analyst Sara Senatore said recent economic jitters had casual dining investors on edge and Friday’s manufacturing data likely had a big part in rallying the shares of Darden and Brinker International Inc (EAT.N).

Darden, which also operates the LongHorn Steakhouse chain, saw its stock rise nearly 5 percent while Brinker, parent of Chili’s Grill & Bar, was 6 percent higher in early afternoon trading.

Results from Olive Garden lately have disappointed investors. In the fourth quarter ended on May 29, the chain was the only one of Darden’s “Big Three” brands to show a fall in monthly visits.

Featured dishes and advertising campaigns at Olive Garden recently have failed to hit their mark, and the company is making changes, executives said on a conference call with analysts.

“They’re going to emphasis more price certainty” by picking one price for limited time offers, said Miller Tabak & Co analyst Stephen Anderson.

Darden used that tactic at Red Lobster, which just turned in its first quarterly traffic gain in 15 consecutive quarters.

“It’s the kind of strategy we think has helped right the ship at Red Lobster,” said Anderson.

The company said the first month of its fiscal year was a “very solid start,” and Drew Madsen, Darden’s president and chief operating officer, struck a cautiously optimistic tone during the company’s conference call.

“We are encouraged by the gradual and sustained improvement in our industry and we anticipate continued modest recovery during fiscal 2012,” Madsen said.

Darden said it is getting more of its traffic from diners with incomes above $75,000. While a bigger share of its customers is coming from that well-heeled group, the company said all of its diners were budgeting carefully and seeking value.

    Orlando, Florida-based Darden, one of the restaurant industry’s top performers, also plans to eliminate $65 million to $75 million in costs this year.

    Food costs are rising for all restaurant operators, but Darden now expects its food inflation to be in the lower half of its forecast of 5 percent to 5.5 percent.

    The company has locked in food costs for the first half of this fiscal year, said Chief Financial Officer Brad Richmond, who expects food inflation to ease in the second half.

    On Thursday, Darden reported a fiscal fourth-quarter profit that matched Wall Street estimates.

    It forecast full-year earnings of $3.82 to $3.92 per share, above analysts’ expectations of $3.81, according to Thomson Reuters I/B/E/S. That forecast includes an expected 2.5 percent increase in combined same-restaurant sales at Olive Garden, Red Lobster and LongHorn Steakhouse.

    Darden bought 2.3 million shares of its common stock during its fourth quarter.

    Its board also declared a quarterly dividend of 43 cents per share, a 34 percent increase from the company’s previous quarterly dividend.

    Reporting by Lisa Baertlein; Editing by Lisa Von Ahn and Tim Dobbyn

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