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Darden warns of more pressure on casual dining

ORLANDO Fla. Darden Restaurants Inc. has steeply lowered its fiscal-year forecast and projected first quarter results below Wall Street expectations, citing a “more challenging than anticipated economic and consumer environment.”

Many financial analysts covering the company said the news does not bode well for other restaurant operators, especially those in casual dining.

Abellwether for the industry, Darden said on Tuesday that its previous expectations for same-store sales increases “proved optimistic” and that results “will remain under pressure for the balance of the fiscal year.” The company operates more than 1,700 restaurants under the Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze and Seasons 52 brands.

Orlando-based Darden had weathered the economic downturn better than most of its competitors, posting positive sales at its Red Lobster and Olive Garden chains. Its admission that results won’t hit company or analyst expectations sent its shares down more than 15 percent during afternoon trading.

“The new news for Darden and other restaurants is slowing industry same-store sales as year-over-year unemployment increases ramp up and the impact of tax rebates diminishes,” David Palmer, a restaurant securities analyst at UBS Equity Research in New York, said in a research note.

In the first look at the Darden’s sales trends for its first fiscal quarter ended Aug. 24, same-store sales fell 3.7 percent at Red Lobster and 4.9 percent at LongHorn. Same-store sales remained positive at Olive Garden, up 2.4 percent.

The lower-than-anticipated sales trends moved Darden to project first quarter earnings between 60 cents per share and 62 cents per share, excluding one-time charges and integration costs surrounding its purchase of Rare Hospitality in October 2007. On average, analysts had expected per-share earnings of 75 cents, according to Thomson Financial.

For the full year Darden said it expects earnings-per-share to be flat or up 5 percent from a year earlier, versus previous company expectations that called for growth between 9 percent and 10 percent. Estimates for revenue growth were cut by two percentage points to between 12 percent and 13 percent. Combined same-store sales for Red Lobster, Olive Garden and LongHorn are now expected to be flat to up 1 percent for the year, versus previous expectations for growth of 2 percent, the company reported.

Darden’s full first-quarter earnings are expected on Sept. 16.

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