Olive Garden, Red Lobster strain for turnaround
NEW YORK — Darden Restaurants Inc. is struggling to revive sales at its flagship Olive Garden and Red Lobster restaurants. A key sales figure fell at the chains during the company’s fiscal fourth quarter, and revenue came up short of expectations.
The Orlando, Fla.-based restaurant operator has been reworking its menu and pricing to reverse declining sales at Olive Garden, which is the company’s biggest chain and accounts for almost half the company’s revenue. The company’s 10 percent rise in net income for the quarter came primarily from opening new restaurants.
Darden said Friday that revenue at Olive Garden restaurants open at least a year nevertheless fell 1.6 percent in the quarter. At Red Lobster, the figure fell 3.9 percent. The metric is a key indicator of health because it strips out the effect of newly opened and closed stores.
Darden attributed the drop at Olive Garden to its “Taste of Tuscany” promotion, which it said didn’t offer diners enough value at a time when people are watching their budgets and have so many more casual dining options.
Executives noted that a new promotion starting next week — two meals for $25 — will go back to underscoring value. A new core menu and advertising campaign are also slated for next year.
For 2013, Darden forecast a profit of $3.86 to $4 per share, which fell short of Wall Street expectations of $4.06 per share, according to FactSet. Given expectations for slow economic recovery, the company forecast sales at established restaurants to grow just 1 percent to 2 percent.
“Still, because of the strong collective long-term prospects for our portfolio of brands, we are accelerating new restaurant growth in fiscal 2013,” said Chief Financial Officer said Brad Richmond. He said about 100 net new restaurants will open in fiscal 2013. The company has 89 more restaurants at the end of the fourth quarter than it did a year earlier.
For the three months ended May 27, Darden said revenue from newly opened restaurants lifted its profit by 10 percent. The company reported net income of $151.2 million, or $1.15 per share, in line with Wall Street expectations. That compares with $137.4 million, or 99 cents per share, a year ago.
Revenue was $2.07 billion, up from $1.99 billion a year ago but shy of the $2.11 billion analysts were expecting, according to FactSet.
Darden’s shares fell $1.64, or 3.3 percent, to $48.75 in premarket trading.
At Red Lobster, the company noted that a $1 price hike, to $12.99, for its popular “Festival of Shrimp” in April scared off diners.
Sales at the company’s LongHorn Steakhouse restaurants open at least a year climbed 3 percent. The company said it added 11 Eddie V’s restaurants in the quarter.
Darden raised its dividend to 50 cents per share from 43 cents. The new quarterly payment will be made Aug. 1 to shareholders of record on July 10.