What's Eating Olive Garden and Red Lobster?
Sep 21st 2013 3:36PM
Updated Sep 21st 2013 3:38PM
If you're finding a few more empty tables than usual at your local Olive Garden or Red Lobster, you're not alone in being alone.
Darden Restaurants reported surprisingly problematic quarterly results on Friday. Analysts were taken aback by the lower-than-expected profitability at the parent company of Olive Garden, Red Lobster, and LongHorn Steakhouse, but the real shocker is the cascading same-restaurant sales at operator's two biggest chains.
Comps fell 4% at Olive Garden for the quarter. It was even uglier at Red Lobster, with its 5.2% slide. The results were more encouraging at Darden's smaller concepts, but let's not kid ourselves here. Olive Garden and Red Lobster combined for more than 71% of Darden's sales this past quarter. If there's not enough bread in Olive Garden's unlimited breadsticks basket -- or if something cheesy's going on with Red Lobster's Cheddar Bay biscuits -- Darden's going to be smarting.
It certainly seemed as if casual dining was starting to turn the corner. NPD Group reported earlier this month that after consistent quarterly declines dating all the way back to 2008, the casual-dining segment was flat during this year's second quarter.
Darden's drivers held up well during that period. Comps at Olive Garden and Red Lobster rose 3.2% and 1.1%, respectively, in the previous quarter. Things seemed to be going well enough that Darden increased its dividend at the time. That was during the fiscal quarter that ended in May, and that's important.
Darden reports on a different fiscal calendar from most chains, but by doing so it also provides an early read into how business has been in July and August for the casual-dining industry. Right now, things don't look too promising.
Then again, it's not as if casual dining was merely flat all over in the quarter NPD was tracking. If Darden's concepts were doing well during April and May, it follows that rivals weren't holding up as well. Ruby Tuesday saw comps at franchised locations plunge 5.1% during the three months ending in June. Brinker's Chili's also posted a marginal dip in domestic same-store sales for the quarter. If Olive Garden and Red Lobster have deteriorated, one can only imagine how bad things may be elsewhere.
We'll find out soon enough. Ruby Tuesday and Brinker should report quarterly results next month. Keep the antacids nearby.
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The article What's Eating Olive Garden and Red Lobster? originally appeared on Fool.com.Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of Darden Restaurants. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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