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?
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Published on Dec 7, 2012
By Leo Sun