Shrimp Costs Land Red Lobster in Hot Water

Olive Garden and Red Lobster Locations Ahead of Darden Restaurants Inc. Earning Figures
Daniel Acker/Bloomberg via Getty Images
ORLANDO, Fla. -- A spike in shrimp costs is causing yet more trouble for Red Lobster.

The seafood chain's parent company Darden Restaurants (DRI) on Friday reported a lower quarterly profit in line with its previously announced estimates. Sales at its struggling Olive Garden and Red Lobster chains dropped by 5.4 percent and 8.8 percent respectively, as reported on March 3.

The Orlando-based company has been fighting to win back customers at its flagship chains and has said it will spin off or sell Red Lobster to focus its attention on fixing Olive Garden with a revamped menu and marketing. Both chains have been losing customers as more affordable alternatives such as Chipotle have gained in popularity.

But in recent months, another factor weighing on Red Lobster was higher shrimp costs. Executives said that costs in the quarter rose about 30 percent because a "production issues in Asia." They said don't expect relief until the early part of its fiscal 2015 year.

On an annual basis, Chief Financial Officer Brad Richmond said the company is facing a $30 million increase in shrimp costs.

For the quarter ended Feb. 23, Darden posted a profit of $109.7 million, or 82 cents a share, matching its guidance.
That was down almost 23 percent from year-ago earnings of $134.4 million, or $1.02 a share.

Analysts expected earnings of 85 cents a share.

Revenue of $2.23 billion was down 1 percent, below the $2.26 billion analysts expected.

Darden also said it still expects its fiscal 2014 earnings to be down between 15 percent and 20 percent from last year. Revenue at stores open at least a year, a key sales metric, is expected to fall 5.5 percent.

The results come a day after Starboard Value LP, which owns about 5.5 percent of Darden's stock, submitted a filing to the Securities and Exchange Commission seeking to call a special shareholders meeting. Darden has urged its shareholders to reject the proposal.

At issue are Darden's plans for its business. Starboard wants Darden to separate all of its large brands, including Olive Garden and LongHorn Steakhouse, from its smaller, better-performing ones such as Bahama Breeze and The Capital Grille.

Its shares fell $1.30, or 2.6 percent, to $48 in premarket trading about an hour before the market open.

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Brenda Kay

I love Red Lobster. The price is worth it! Great food/Great service.......

March 29 2014 at 1:10 AM Report abuse rate up rate down Reply
Brenda Kay

I love Red Lobster. The price is worth it! Good food, Great service!
Hope they don't close.......

March 29 2014 at 1:02 AM Report abuse +1 rate up rate down Reply

I suggest they FIRE thier buyers ,, the cost of 26 to 32 shrimp per lb is 17cents a lb. how can you not make money at that cost ,,,

March 28 2014 at 12:41 PM Report abuse rate up rate down Reply

The cost of seafood has always fluctuated that is taken into account. A seafood franchise that does not take into account the ups and downs of seafood. Had to deal with it for years quietly. Is just looking for a scapegoat for cutting corners. Its the freshness of it. It will cook up like rubber if frozen or flash frozen or chilled for days. Even when not over cooked. It will appear and taste like it was.
3 distribution centers and franchises all over the world. The problem is frozen or fresh for days chilled sea food that is not exactly fresh. Your only as good as the ingredients you use to cook with. And they use one step above substandard.

March 22 2014 at 11:23 AM Report abuse rate up rate down Reply

If I had my choice in the matter I would let Olive Garden go. There are so many more Italian places to go to that are much more authentic. I would try to salvage Red Lobster. Put the money there, spruce up the menu and add more varieties. I bet they would see turn around for the belter.

March 21 2014 at 10:41 PM Report abuse +1 rate up rate down Reply

Sorry to hear about all the troubles with RL and OG. Never had a bad experience all the times I visited a restaurant belonging to either chain. What's more, some of my happiest memories are of times I dinned at those places.

March 21 2014 at 10:39 PM Report abuse +1 rate up rate down Reply

:Lobster? No, they should just call it Carb City with a shrimp garnish.

March 21 2014 at 10:33 PM Report abuse +1 rate up rate down Reply

wow only profit 109.7 million now looking to sell

March 21 2014 at 10:16 PM Report abuse rate up rate down Reply

I recall going to Olive Garden for my birthday, invited by two friends. The salad contained one olive on each of the salads. I joking said to my friends, why do they call ir Olive Garden and only give you one olvie on your salad? We mentioned it to our server and he brought a small bowl with six olives in it. We could hardly contain ourselves from laughing. Never have been to Red Lobster, no plans to, either.

March 21 2014 at 10:07 PM Report abuse rate up rate down Reply
2 replies to dsmart86's comment

Don't think they named it Olive Garden because of the olives. Could it be because they cook in olive oil?

March 21 2014 at 10:58 PM Report abuse rate up rate down Reply

How do you know you won't like "Red lobster" if you never been there?

March 29 2014 at 11:26 AM Report abuse rate up rate down Reply

Olive Garden is the worst "Italian" restaurant EVER! - Unless of course, you love lots of salt and butter on your less than mediocre food...

March 21 2014 at 9:51 PM Report abuse rate up rate down Reply