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Darden: Consumer sentiment still choppy

Darden Restaurant Inc. posted improved profit and higher sales for its third quarter, but noted that the restaurant environment is still difficult to navigate as consumer sentiment remains mixed.

The company’s profit for the three months ended Feb. 26 rose 8.5 percent. Earnings totaled $164.1 million, or $1.25 per share, up from $151.2 million, or $1.08 per share, in the same quarter the year earlier.

Latest-quarter revenue rose 9 percent to $2.16 billion, reflecting positive same-store sales at each of the company’s chains, including a return to positive results at the struggling Olive Garden.

At Olive Garden, which had posted negative sales trends for more than a year, improved guest traffic and unseasonably warm winter weather helped boost sales. Earlier this year Darden noted that the chain will look to increase its value equation with customers, and recently debuted a $6.95 lunch promotion. That focus on value will continue for the chain, especially as consumers remain cautious on spending, according to Darden executives.

“The need for affordability continues, particularly in households that are more economically challenged,” Andrew Madsen, president and chief operating officer, said in a conference call with analysts and investors on Friday.

Orlando, Fla.-based Darden Restaurants operates 1,959 restaurants, including 702 Red Lobster units, 776 Olive Garden locations and 374 LongHorn Steakhouse restaurants, along with others under The Capital Grille, Bahama Breeze, Seasons 52 and Eddie V’s brands.

Madsen said Olive Garden will continue to run marketing campaigns that highlight specific new dishes and specific price points. The shift away from the chain’s traditional advertising that focused on Olive Garden’s Italian heritage is meant to promote the chain’s affordability.

“We are anticipating increasing traffic with a consumer set – with a guest segment that’s more affordability-minded – and that’s going to drive increases in total sales, in total margin dollars,” Madsen said. “We’re not anticipating, not planning, on a check decline.”

The company affirmed that it expects combined full-year U.S. same-store sales growth of between 2.5 percent and 3 percent for Red Lobster, Olive Garden and LongHorn Steakhouse. It also expects to open between 85 and 90 net new restaurants, which will help drive total sales growth of between 7 percent and 7.5 percent in fiscal 2012. Darden also affirmed that it anticipates growth in diluted net earnings per share from continuing operations to range between 4 percent and 7 percent.

Darden chief executive Clarence Otis said casual-dining trends have indeed improved but continue to rest on the choppiness of consumer sentiment.

“If we step back and look at it, I’d say, the last two years, it’s been a slow improving trend inside casual dining,” Otis said. “But that two years has also been marked by choppiness, and that choppiness has been based on consumer sentiment … So the underlying trend continues to be an improving trend, but there continues to be choppiness.”

Darden third-quarter chain results:

OLIVE GARDEN: Third-quarter sales rose 5.5 percent to $957 million, driven by revenue from 33 net new restaurants and a same-store sales increase of 2 percent.

RED LOBSTER: Sales increased 7.4 percent to $712 million. Domestic same-store sales increased 6 percent and the chain opened eight net new restaurants.

LONGHORN STEAKHOUSE: Sales totaled $311 million, a 16.2-percent increase from the same quarter a year ago, driven by 27 net new restaurants and a U.S. same-store sales increase of 6.7 percent.

SPECIALTY RESTAURANT GROUP: Third-quarter sales totaled $178 million, a 27.8-percent increase from the same quarter last year. Same-store sales rose 5.7 percent at The Capital Grille, 5.9 percent at Bahama Breeze and 6.1 percent at Seasons 52.

Contact Sarah Lockyer at [email protected].
Follow her on Twitter: @slockyerNRN

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