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Darden warns on 2Q results, stock drops

Darden warns on 2Q results, stock drops

Company says failed promotions at Red Lobster, Olive Garden and LongHorn Steakhouse caused lower-than-expected sales

Darden Restaurants Inc. warned Tuesday that its second-quarter 2013 earnings will be lower than expected, citing promotional offers that missed their marks.

The Orlando-based company said in a statement that it expects its combined U.S. same-store sales at Red Lobster, Olive Garden and LongHorn Steakhouse to have fallen 2.7 percent for the quarter ending Nov. 25. The company anticipates that its same-store sales for its specialty group, which includes Seasons 52 and The Capital Grille, will have risen 0.7 percent year over year.

Darden's stock dropped following the announcement, falling nearly 10 percent by noon on Tuesday.

Broken down by brand, the company expects Olive Garden’s same-store sales to have dropped 3.2 percent; Red Lobster’s same-store sales to have dropped 2.7 percent; and LongHorn Steakhouse’s same-store sales have fallen 0.8 percent year over year.

The company also expects that its earnings per share will be about $0.25 or $0.26, which includes one-time adjustments of 5 cents for the acquisition of Yard House and 1 cent for Hurricane Sandy, said Darden spokesman Rich Jeffers in an email. The Street was expecting $0.46 or $.0.47 for the quarter, which doesn’t account for the one-time changes, he said.

“Our second quarter is an especially value-sensitive time of year, and this year’s promotional offers were largely consistent in nature with what we’ve promoted successfully in the past,” said Darden chief executive and chairman Clarence Otis in a statement. “These promotions did not resonate with financially stretched consumers.”

The company declined a request for an interview.

During the quarter, Darden revamped menus and began rebranding efforts at its three largest brands: Olive Garden, Red Lobster and LongHorn Steakhouse.

At Olive Garden, Darden introduced a lighter-fare menu section and a “Dinner Today & Tomorrow” promotion that offered two dinners — one at the table and one packed away to take home — for $12.95. The new offerings were accompanied by a new ad campaign that encouraged customers to “Go Olive Garden.”

LongHorn Steakhouse’s second-quarter ad campaign used the tagline “You Can’t Fake Steak.” The restaurant introduced new menu items during the second quarter, including a Cheddar-and-bacon stuffed filet and a lobster-stuffed filet. The new menu also featured a “Flavorful under 500” section, which offered guests an entrée, side and salad with fewer than 500 total calories.

Red Lobster introduced a new menu that included more non-seafood options and more choices that cost $15 or less. New menu items included a Wood-Grilled Chicken with Portobello Wine Sauce and the brand’s first pork chop dish.

“Our disappointing results for the quarter point to the need for bolder changes in the promotional approach at our three large brands,” Otis said in a statement. “So, we are retooling the promotional calendars at Red Lobster, Olive Garden and LongHorn Steakhouse for the balance of the year to ensure they better fit consumers’ current financial realities and expectations.”

Darden, which operates more than 2,000 company-owned restaurants, will hold its official second-quarter earnings call Dec. 20.

Contact Erin Dostal at [email protected].
Follow her on Twitter: @erindostal

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