Heard on the call: Darden Restaurants Inc.

Heard on the call: Darden Restaurants Inc.

Fourth-quarter call outlines plans for an optimistic 2011

While casual-dining sales this past year have bobbed up and down with consumer confidence, executives from Darden Restaurants Inc. told analysts this week that they expect smoother sailing ahead.

“I think, as we look ahead to 2011, we do expect operating conditions to improve and that’s going to be a continuation of the improvement we think that we saw throughout this fiscal year,” Clarence Otis, Darden’s chairman and chief executive, said in a call with analysts after the company missed earnings expectations for its fourth quarter.

The Orlando, Fla.-based operator of 1,824 restaurants reported fourth-quarter profit of $115.6 million, or 80 cents per share, compared with $123 million, or 87 cents per share, in the same quarter a year ago.

Sales at the company, which owns the Olive Garden, Red Lobster and Longhorn Steakhouse brands, among others, fell 5.7 percent to $1.86 billion. Blended same-store sales for Olive Garden, Red Lobster and LongHorn Steakhouse fell 2.3 percent.

Otis said 2010 sales were “bumpy” week to week.

“We do think consumers do respond to the headlines,” he said in a transcript provided by SeekingAlpha.com [3]. “It reflects sentiment, and sentiment is very much tied to the headlines beyond the underlying fundamentals, which would argue for a little bit more improvement actually than we’ve been seeing.”

The company offered a positive outlook for 2011, with expected sales growth of between 5.5 percent and 6.5 percent, and earnings per share growth of between 14 percent and 17 percent.

The company said it is set to build between 70 and 75 new restaurants in fiscal 2011, which began in June.

Darden executives outlined further efforts for the year ahead:

Red Lobster will continue to refine its price strategy, continue its remodeling program and fine-tune its service model. The division plans to add between three and five net new units in 2011.

Drew Madsen, president and chief operating officer, said Red Lobster will accelerate its Bar Harbor Remodels from 50 units completed last year to 100 units in the current year, and “introduce a new service initiative to make every guest feel special.”

He said that would include “taking the time to try and understand the occasion for which guests have come in the restaurant, and as a result, what their needs and expectations are [to] tailor the rest of the experience to those needs and that occasion.”

“It’s called VIP service,” Madsen said.

Discussing the BP oil spill, Darden executives expressed their concern for families and businesses affected by the explosion and ensuing ecological damage in the Gulf of Mexico. They noted that Darden’s supply chain had been minimally affected. One Louisiana oyster processor had gone out of business and impacted Red Lobster’s menu, the company said. However, Brad Richmond, Darden’s chief financial officer, said, “Oysters make up less than 0.2 percent of the sales” for Red Lobster.

Olive Garden will also modify its service.

“The Olive Garden service initiative is designed to do a better job of quoting wait times and seating guests more efficiently in a way that increases throughput – guest-count throughput – particularly on high-volume periods like Friday and Saturday,” Madsen said.

Seasons 52, which ended Darden’s 2010 fiscal year with 11 units, is expected to add six restaurants in fiscal 2011, said Gene Lee, president of Darden’s specialty restaurant group. Those will include the first units in Arizona, California and Texas.

Seasons 52 reported an average unit volume of $5.9 million in 2010.

“This is a highly differentiated brand that is right for the times in so many ways,” Lee said. “After disciplined development phase, Seasons 52 will be ramping up its growth and transitioning from our regional brand to a national platform.”

Bahama Breeze, Darden’s 25-unit chain, opened a new, smaller prototype restaurant in Jacksonville, Fla., and more rapid expansion is expected.

“Construction costs for this prototype are similar to Darden’s other casual-dining brands,” Lee said.

It covers 7,000 square feet, compared to the 10,000 square feet in the original Bahama Breeze prototype, he added. Another smaller unit is planned for 2011, and four additional units are scheduled for 2012.

“The team will also work on reinvigorating the alcoholic beverage experience, which is still a strong core element of the brand representing more than 22 percent of its total sales,” Lee said.

The Capital Grille, with 40 units, will be enhancing the guest relationship in 2011 with “new software that will enable the restaurant teams to recognize and delight the brand’s most frequent and loyal guests in any Capital Grill they visit,” Lee said.

The technology will enable restaurants to identify the top 10,000 Capital Grille guests as they move amongst the brand, across the country, so they “get the same consistent level of service in Boston and Las Vegas,” Lee said.

It will also work on confirming reservations by other means than telephone calls, he said.

Contact Ron Ruggless at [email protected]