Darden Restaurants Inc.'s (DRI) fiscal fourth-quarter earnings
rose 10% as the casual-dining company saw a slight increase in
sales driven by gains at its smaller specialty dining segment and a
higher store count, but it projected continued weak growth for its
major brands.
Like other companies in the casual-dining sector, Darden--whose
brands include Olive Garden, Red Lobster and LongHorn
Steakhouse--has had to cope in recent years with the challenges of
cost-conscious consumers and high commodity prices. Darden's
earnings growth has fluctuated during the past year as the company
grapples with higher food costs and more competition.
The oversaturated casual-dining market has created pressure for
restaurant operators to stay attractive on price in order to win
customers while finding other ways to make up margins. Bloomin"
Brands Inc., parent of Outback Steakhouse, filed plans in April for
an initial public offering of up to $300 million in common stock to
help pay down debt, while Applebee's-owner DineEquity Inc. (DIN) is
undertaking a strategy to sell underperforming company-owned
locations to franchise operators to improve its margins.
Meanwhile Darden has been trying to push growth at its Olive
Garden chain, which makes up almost half of the company's revenue.
The restaurant's same-store sales increased for the first time in
more than a year in the third quarter, and Darden has attempted to
garner momentum at the chain through value-focused advertising
messages and more affordable core menu dishes.
"From a sales perspective, growth in the fourth quarter was
below expectations, due largely to same-restaurant sales declines
at both Olive Garden and Red Lobster that reflected less effective
than anticipated nationally advertised promotions," Chief Executive
Clarence Otis said. "We believe the business environment in fiscal
2013 will be similar to that in fiscal 2012, with slow and uneven
recovery in both the economy and our industry."
For the quarter ended May 27, Darden reported a profit of $151.2
million, or $1.15 a share, up from $137.4 million, or 99 cents a
share, a year earlier. Sales rose 3.8% to $2.07 billion reflecting
growth in the company's specialty restaurant group and the addition
of another 89 new restaurants.
Analysts polled by Thomson Reuters most recently forecast
earnings of $1.15 a share on revenue of $2.11 billion.
Operating margin widened to 24.1% from 23.9%.
Combined U.S same-restaurant sales--those at restaurants opened
at least 16 months--declined 1.9%. By chain, same-restaurant sales
fell 1.8% at Olive Garden and 3.9% at Red Lobster but jumped 3% at
LongHorn. Its smaller specialty restaurants segment, which includes
brands like The Capital Grille and Eddie V's restaurants, grew
2.7%, driven by the addition of new restaurants.
Looking ahead to fiscal 2013, the company projected total
same-restaurant sales growth of between 1% to 2%--below the
company's long-term range--at Olive Garden, Red Lobster and
LongHorn. Darden predicted total sales growth between 6% and 7% and
earnings growth between 8% and 12% for the year. Wall Street was
looking for 7% sales growth and 13% earnings growth.
Shares were down 3.3% at $48.75 in recent premarket trade. The
stock is up 11% so far this year.
Write to Victoria Stilwell at Victoria.Stilwell@dowjones.com