Darden Restaurants (DRI) Plunges After Revising its Guidance

Shares of Darden Restaurants (DRI: Charts, News) plunged this week after the parent company of Olive Garden, Red Lobster and LongHorn Steakhouse warned that its second quarter earnings will miss analyst estimates. Orlando, Florida-based Darden, which operates 2,000 restaurants, stated that it now expects a 2.7% decline in same-store sales at its three flagship stores, for the quarter ending on November 25.

Same-store sales at its smaller specialty segment, which includes Seasons 52 and The Capital Grille, will post anemic growth of 0.7%. Darden reports its official second quarter earnings on December 20. Daily Chart
Of its three core brands, Olive Garden fared the worse, posting a 3.2% drop in same-store sales, while Red Lobster posted a 2.7% decline. LongHorn Steakhouse performed the best, with a 0.8% decline. Darden now expects earnings per share of 25 to 26 cents per share for the quarter. Excluding one-time charges - 5 cents for the acquisition of "upscale casual" diner Yard House and a 1 cent charge for damage and lost sales from Hurricane Sandy - Darden expects EPS of 31 to 32 cents per share. Wall Street analysts had been expecting significantly higher earnings of 46 to 47 cents per share on the same basis. Darden stated that promotional offers missed their marks during the quarter, generating lower than expected store traffic. "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," stated CEO Clarence Otis, "These promotions did not resonate with financially stretched consumers." The stock plunged 10% on Tuesday after the announcement, and flatlined for the remainder of the week. Despite the steep drop, shares are still up 12.9% over the past twelve months. Darden has been attempting to revamp its menus at its three core restaurants in an effort to attract new customers. Otis commented, "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." Olive Garden notably introduced a "Dinner Today & Tomorrow" promotion, which offers two dinners - one for here and the other to go - for $12.95. It also added a lighter fare menu to attract more health conscious customers. It also introduced a new slogan, "Go Olive Garden." Red Lobster added a new menu with more non-seafood options, such as its Wood-Grilled Chicken with Portobello Wine Sauce and its first pork chop dish, and cheaper items that cost less than $15. LongHorn Steakhouse introduced new items, such as a Cheddar and bacon stuffed filet and lobster-stuffed filet. It also added a "Flavorful Under 500" section, featuring lighter combinations - of an entre, side and salad - with fewer than 500 calories. Darden also introduced a new slogan for LongHorn - "You Can't Fake Steak." Shares of Darden have traded in a 52-week range between $41.65 and $57.93. The stock trades at 11.6 times forward earnings with a 5-year PEG ratio of 1.14, and pays a quarterly dividend of 50 cents per share - a hefty 4.25% yield at current prices. Other News About DRI Did Darden Restaurants Shoot Itself in the Foot? Should Darden have put a more positive spin on its earnings preview? Darden Warns on 2Q Results, Stock Drops Darden's bleak outlook causes the stock to plunge. Other Stocks in the News Decline In Apple Stock Is A Buying Opportunity: Munster Has Apple's scary opened up a buying opportunity? Netflix Signs Deal With The Walt Disney Company To Stream Movies Will Netflix's deal with Disney bring back investors? Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Dec 7, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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