Olive Garden Owner Darden Restaurants Warns on 3rd Quarter

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Olive GardenORLANDO, Fla. (AP) - Darden Restaurants (DRI), struggling to draw more customers into its Olive Garden and Red Lobster restaurants, said Friday that its third-quarter profit could fall below Wall Street's expectations and cut its outlook for the year.

The Orlando, Fla.-based chain has tried to revamp menus and marketing for its flagship chains. But revenue at Olive Garden, Red Lobster and LongHorn Steakhouse locations open at least one year is expected to fall 4.5 percent in the quarter ending Feb. 24, indicating those efforts have yet to pay off.

The company's priority is re-establishing customer traffic momentum at the three restaurant chains, said CEO Clarence Otis in a statement. "We recognize there is still more to do to further address affordability and to improve other important aspects of the guest experiences we provide."

Otis said the first half of the fiscal third quarter was "encouraging," but higher payroll taxes and rising gas prices, along with severe winter weather, sent sales sliding in February.

Darden Restaurants Inc. said net income from continuing operations in December-February period will be $1 to $1.02 per share, below analyst expectations of $1.12 per share, according to FactSet.

Darden, like other restaurant chains, has been dealing with tougher competition due to the growing popularity of chains such as Chipotle Mexican Grill and Panera Bread. They offer food that's a step up from fast food but not as expensive as a sit-down restaurant.

To combat this, at Olive Garden, the company rolled out an updated advertising campaign and introduced more light and affordable dishes. At Red Lobster, it added options for people who don't like seafood.

But so far these changes have not sparked a turnaround. In January Darden replaced the president of Olive Garden in an effort to improve results.

Darden isn't the only consumer company saying the higher payroll tax has cut into its business. On Thursday Wal-Mart Stores Inc. (WMT) said higher taxes, along with rising gas prices and delayed income tax refunds, were also crimping spending by its customers.

On Jan. 1, Social Security payroll taxes rose 2 percentage points after a temporary tax cut expired. That sliced about $1,000 from the annual take-home pay of a household earning $50,000.

For the third quarter, Darden expects revenue in restaurants open at least one year, a key retail metric, to drop 4 percent at Olive Garden, 7 percent at Red Lobster and 1.5 percent at LongHorn Steakhouse. For its division of smaller restaurant chains, it expects the measure to rise 2 percent.

For the fiscal year ending in May, Darden predicted revenue in restaurants open at least one year to rise 6 to 7 percent across its chains. The figure is expected to fall 1.5 to 2.5 percent for its division containing the Red Lobster, Olive Garden and LongHorn Steakhouse chains.

The company cut its outlook for 2013 earnings from continuing operations to $3.06 to $3.22 per share, from a December prediction of $3.29 to $3.49 per share. Analysts expected $3.38 per share.

The forecast includes costs of 9 cents per share related to acquiring the Yard House restaurant chain.

Darden plans to announce third-quarter results March 22.

Shares rose 80 cents, or 1.8 percent, to $45.54 in morning trading Friday. The stock had dropped 12 percent over the past 12 months.


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754 Comments

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flow0347

After reading the comments, I wonder how the restaurants stay in business. They are described as dirty and the staff as less than nice. It is run by a business team, not a group of chefs. When "Darden" bought the different restaurant chains he did it to make money as long as he could make money. The purpose of his business is not to prepare and serve great food, but to SELL a product. Just decided I will spend more time in local type places that serve food. Thanks for the article and comments. The web is coming in handy.

February 25 2013 at 8:41 AM Report abuse rate up rate down Reply
Ed

Always a wait in the evening to go to Olive garden, Longhorn and Red Lobster where I live. I do not like waiting 30 minutes to eat so I just go elsewhere.

February 24 2013 at 6:01 PM Report abuse rate up rate down Reply
1 reply to Ed's comment
Karl

Old Story first of all.. However:
Those restaurants are always busy!! Lines out the door... A 90 minute wait or longer!! If food was that crappy, there would not be any customers. Yes... The prices are high. Gas is high. It costs us about $10.00 now just
in GAS to get to RL or OG. Then you have a $10.00 tip. Right off the bat you are down $20.00. Then expect to pay $2.85 for a THREE Cent glass of Iced Tea. Add another $6.00 for two people. Now you are out $26.00 and have not even ordered any food yet.

February 24 2013 at 8:21 PM Report abuse rate up rate down Reply
1 reply to Karl's comment
Brian Joslyn

I've never waited longer than 30 to 45 minutes at any Red Lobster and waited less time at any Olive Garden. Part of the reason prices are higher lately is gas, true. However, consider the type of places we're dining at as per this news post.

If it's really costing you $10 in gas just to get to either restaurant then you're either traveling a significant distance to get there or you don't know how to do the math to determine the cost of gas per mile as per the vehicle used and current cost of gas. The current best minimum MPG for a vehicle is 30. Even with gas at $5 per gallon, going ten miles in a vehicle getting 30 MPG is only $.17 per mile. Using those numbers, you'd have to be going nearly 59 miles just to get there.

February 24 2013 at 8:44 PM Report abuse rate up rate down
AFMomXs2

Here is a little advice ... FIX CUSTOMER SERVICE AND MANAGEMENT!!! It also wouldn't hurt if you didnt keep the carpets in them till they were so full of grease and food they make you puke to look at them. DC area Red Lobster have about 90% black employees and if you are white you are lucky to get waited on. Last time we were there the waitress showed up once to take our order once to drop off the drinks and biscuts and that was the last we saw of her. Then she expected a tip. She got ZERO !! Everything in those places is filthy. I love Olive Garden BUT Prices are insane at all of them !!

February 24 2013 at 5:25 PM Report abuse rate up rate down Reply
1 reply to AFMomXs2's comment
Brian Joslyn

That's not advice. That's complaining. If you don't like it then don't go to such places.

Anyways...
So you never got your food from that waitress? It seems she really didn't deserve a tip, unless it might have been the end of her shift and the waiter/waitress taking her place wasn't informed that you were one of their tables.

February 24 2013 at 8:54 PM Report abuse rate up rate down Reply
TRANE DEALER

The Red Lobster in Clearwater FL,
I attended lunch meeting there for 7 months. This place has very poor management. they brought in a new and that still didnt help. We were more often then not without a trained waiter.Orders always messed up, specials not in stock, check not supplied until asked. The place smells of mold and dirty carpets. Roaches are acceptable according to the management so you will never have to dine alone. Over priced frozen fish. We left this place for good.

February 24 2013 at 5:11 PM Report abuse +1 rate up rate down Reply
mikersales

Ummm, maybe people aren't comming because they heard about you cutting peoples hours so you didn't have to pay for health insurance?

February 24 2013 at 4:50 PM Report abuse rate up rate down Reply
dixiesmeemawnkt

A year or so ago my daughter and son-in-law went to Red Loster for their anniversary (during the week), and they were OUT of fresh fish! Seriously! She wrote them and complained, and they sent her a gift card.

February 24 2013 at 4:35 PM Report abuse rate up rate down Reply
MJones

Sorry about the number of the same comment posted. Got a message from AOL stating technical difficulties when I hit submit. Obviously that was the result.

February 24 2013 at 4:21 PM Report abuse rate up rate down Reply
MJones

I ate at Olive Garden just two days ago and it was fantastic. I have always had a Great Experience when dining in any of these three restaurants. I feel that how things have been projected in media at times hurts them more than they should. Jay Leno and the title of this article is a great example. What sent customers fleeing? Sounds like they had rats in their kitchen or cockroaches in their food. Olive Garden is amazing and just because Jay Leno claims not real Italian doesn't mean that it's not. After all, we all know that Jay can be off with his opinions as well. But, as far as the food and experience at all of these restaurants. I would honestly eat there every day. That is if I didn't gain 200 lbs in the process because I always tend to eat more than I should when I go there. They really do have great food. As for the salad portions that another person just commented on. Their salad is bottomless. So, if you have eaten your bowl, please ask the waiter/waitress for more. And for the record, no, I am not an employee of any of this business/these businesses in any way, just stating the obvious. I understand that each experience one has is their own and each restaurant is different, but the ones we have here are fantastic. As a matter of fact, I'm eyeing someone else's leftovers right now. See ya!

February 24 2013 at 4:19 PM Report abuse rate up rate down Reply
danlinda

RL & OG are WAY too pricey. The people at the top are so greedy they're going to price themselves right out of business. The greed of the EO's force the franchise owners to charge outrageous prices just to break even. Same with the tax companies like H&R Block and Liberty. The company forces so much in payment from the franchise buyers before they can start to keep any of their earnings. It forces them to charge ridiculously inflated fees to the consumer just to make a small profit. End result? Fewer customers and eventual bankruptcy. Their greed blinds them.

February 24 2013 at 4:03 PM Report abuse rate up rate down Reply
kwadmanply

I love the Longhorn and we are always happy with the service and the food. The Olive Garden is nasty here now. It was very good but now the food is awful as are the portions of salad.

February 24 2013 at 3:38 PM Report abuse rate up rate down Reply