September 20, 2013 / 11:48 AM / 6 years ago

Darden profit flops, squeezed by U.S. economy and rivals

(Reuters) - Darden Restaurants Inc (DRI.N) 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 (CMG.N) and Panera Bread Co PNRA.O - 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 August 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 3.3 percent.

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.

Editing by Lisa Von Ahn, Chris Reese and Leslie Gevirtz

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