Olive Garden & Red Lobster in hot water again

Olive Garden & Red Lobster in hot water again

Steve’s breakdown: If you want to work for either one of these clients, you’ll have to have a brand name stockholders have a fuzzy feeling about. But if you do, it’s time to make some calls.

ORLANDO, FL: 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 latest quarter, and the company issued a profit forecast that fell short of Wall Street expectations.

The Orlando, Fla.-based restaurant operator has been reworking the menu and pricing to reverse declining sales at Olive Garden, which is its biggest chain and accounts for almost half its revenue. The 10 percent rise in Darden’s net income for the quarter came primarily from the opening of new locations, including those for its smaller specialty chains.

Revenue at Olive Garden restaurants open at least a year fell 1.6 percent in the quarter. At Red Lobster, the figure fell 3.9 percent. The metric is an indicator of health because it strips out the effect of newly opened and closed stores.

Darden attributed the drop at Olive Garden in part to its “Taste of Tuscany” promotion, which it said didn’t emphasize value enough at a time when diners are watching their budgets and have so many more casual dining options.

Olive Garden’s menu “failed to keep pace with guest expectations that started to evolve much faster than they had in the past, said Andrew Madsen, Darden’s president and chief operating officer.

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.

“We’re making progress on our efforts to elevate the guest experience at Olive Garden, and over the next 12 months guests will see more and more of the improved food, service, value and advertising we’ve been developing,” CEO Clarence Otis said in a prepared statement.

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.

Based on the long-term prospects for its brands, however, the company plans to accelerate growth in its fiscal 2013, with about 100 net new restaurants. The company had 89 more restaurants at the end of the quarter than it did a year earlier.

For its fiscal fourth quarter, Darden 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 for the three months ended May 27, 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 84 cents, or 1.7 percent, to $49.55 in midmorning trading.

At Red Lobster, the company noted that a $1 price hike for its popular “Festival of Shrimp,” which lets diners pick any two shrimp dishes, wasn’t well received.

Madsen said company research suggested consumers would be “largely indifferent” to the higher $12.99 price. But the softer sales during the promotion proved the hike “turned out to be too aggressive,” he said.

Sales at the company’s LongHorn Steakhouse restaurants open at least a year climbed 3 percent. The figure rose 2.8 percent at The Capital Grille and Bahama Breeze and 1.9 percent at Season 52. The company also acquired 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 July 10.


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