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Darden’s profit falls on slowdown at Red Lobster, LongHorn

ORLANDO Fla. Darden Restaurants Inc. said Tuesday its first quarter sales and earnings missed previous company expectations because of weaker-than-anticipated economic and consumer dynamics.

 

The operator of more than 1,700 casual-dining restaurants said first quarter net profit fell 22.5 percent from a year ago as sales slowed at its Red Lobster and LongHorn Steakhouse chains. Total costs also rose 26 percent year-over-year, or nearly four percentage points when gauged as a percent of total sales.

 

 

For the quarter ended Aug. 24, Darden earned $82.1 million, or 58 cents per share, compared with year-ago net profit of $105.9 million, or 72 cents per share. Costs related to Darden’s October 2007 acquisition of Rare Hospitality International Inc. totaled about 3 cents per share in the latest quarter. Excluding those costs, net earnings from continuing operations would have totaled 61 cents per share in the latest quarter, the company reported.

 

 

First-quarter sales rose 21 percent to $1.77 billion, and included $270 million in sales from LongHorn and The Capital Grille, which were both acquired when Darden purchased Rare. Darden’s other chains include Red Lobster, The Olive Garden, LongHorn, Capital Grille, Bahama Breeze and Season’s 52.

 

 

First quarter same-store sales increased 2.4 percent at Olive Garden, but fell to negative territory at all other chains. Same-store sales declined 3.7 percent at Red Lobster, 4.9 percent at LongHorn, 8.6 percent at Capital Grille and 3.7 percent at Bahama Breeze.

 

 

Late last month, Darden had issued a profit warning and also lowered financial outlooks for the full year. On Tuesday, the company reiterated its softer expectations.

 

 

“While there has been some recent improvement in energy prices, which are an important factor in consumer spending levels, our É outlook for the balance of the year assumes that consumers will remain under pressure,” said Darden chairman and chief executive Clarence Otis.

 

 

Darden said it expects full-year, blended same-store sales for its Red Lobster, Olive Garden and LongHorn brands to remain unchanged from a year ago or to increase by 1 percent. Total sales are expected to increase between 12 percent and 13 percent this year, compared to reported sales from continuing operations of $6.63 billion in fiscal 2008, which ended in May.

 

 

Darden said per-share earnings from continuing operations for the current fiscal year are expected to increase between 5 percent and 10 percent from earnings from continuing operations of $2.55 per share in fiscal 2008. Those estimates include acquisition-related costs.

 

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