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Olive Garden Sales Drag on Darden's Quarterly Profit

An Olive Garden casual dining chain restaurant.
Kristoffer Tripplaar/Alamy
By CANDICE CHOI and MICHELLE CHAPMAN

NEW YORK -- Darden said Friday that sales continued to slide at Olive Garden and Red Lobster, with other costs dragging down its profit by 35 percent in the latest quarter.

The results fell short of Wall Street expectations, and shares were down 2.5 percent in midday trading.

Darden Restaurants (DRI) has been fighting to stop declining sales at Olive Garden and Red Lobster. Such sit-down chains were hit hard by the downturn, which prompted many customers to trade down to cheaper options. The menus at Olive Garden and Red Lobster also failed to keep pace with changing tastes.

Despite ongoing efforts to fix the marketing for the chains, sales at Olive Garden fell 3.5 percent at established locations during the quarter. At Red Lobster, the figure dropped 5.6 percent.

Under pressure to deliver better results, Darden announced late last year that it planned to get rid of Red Lobster and focus on fixing Olive Garden. The company says that Olive Garden customers are more in line with those at its smaller, more successful chains, such as The Capital Grille and Yard House.

Darden says Red Lobster chains tend to be in lower income brackets.

To revitalize Olive Garden, executives say they plan to underscore the quality and freshness of the food, which they say are increasingly important traits for customers. They're also rolling out lighter dishes, and trying to boost the chain's lunchtime business.

So far in June, the company said Olive Garden's sales at established locations are flat, an improvement from the negative results over the past fiscal year.

"We're in the early stage of exposing guests to what we call a brand renaissance plan," said Eugene Lee, president of Darden.

For its fiscal fourth-quarter ended May 25, Darden earned $86.5 million, or 65 cents a share. A year earlier it earned $133.2 million, or $1.01 a share.

Stripping out one-time charges, such as those associated with the sale of Red Lobster, earnings were 84 cents a share. That was still short of the 94 cents a share Wall Street expected.

Total revenue rose slightly to $2.32 billion, boosted by new locations. That was also short of the $2.33 billion Wall Street predicted, according to FactSet.

Darden's smaller chains fared better. Sales at LongHorn Steakhouse restaurants in the U.S. open at least a year increased 2.4 percent. The figure climbed 2 percent at the specialty restaurant group, which includes Bahama Breeze, The Capital Grille, Yard House, Eddie Vs and Seasons 52.

For the full year, Darden posted an adjusted profit of $2.47 a share. Annual revenue totaled $8.76 billion.

The company's board also declared a quarterly dividend of 55 cents a share.

Shares of Darden dropped $1.24, or 2.5 percent, to $48.28 in midday trading. They had been down 9 percent so far this year through Thursday's close.


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17 Comments

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elizaanne.lynne

Olive Garden sells mediocre cuisine at best. Its recipes not authentically Italian and the prices are too high for what is served. Even the marinara sauce is sub-standard. That is why I don't patronize the place.

June 21 2014 at 1:44 AM Report abuse rate up rate down Reply
hsena

i have been eaten at olive garden since they were in my area. its still one of the best. the other ones i have tried have lousy service or food so i just keep going the one by me

June 20 2014 at 9:28 PM Report abuse rate up rate down Reply
havingfun8910

VERY high priced for the small amount of food you get. The old fill them up with free salad and free bread is a bit outdated and the public has caught on. That $8.00 bowl of soup is kinda silly as well.

June 20 2014 at 8:58 PM Report abuse +1 rate up rate down Reply
Linda Martin

I ate at Olive Garden ONCE. I got what I'm pretty sure was grocery store penne with a can of Hunt's diced tomatoes on top. Never went back.

June 20 2014 at 8:40 PM Report abuse +3 rate up rate down Reply
noyfb56

when they started cutting their portions in half we stopped going there.....treat your customers like that and what do they expect....

June 20 2014 at 7:58 PM Report abuse +1 rate up rate down Reply
Frank

REVISE THE WHOLE MENU IF YOU WANT TO STAY IN BUSINESS

June 20 2014 at 7:55 PM Report abuse +1 rate up rate down Reply
cvanac8550

Eat there once 10 or so years ago..never went back ..I feel for the folks in places like Centerville Ohio that have to go to an Olive Garden to eat "Italian Food"....one of the perks of living in the New York metro area ...hundred of choices..and if your food/service is bad your out of business......

June 20 2014 at 7:01 PM Report abuse rate up rate down Reply
Fred

When their menue changed we stopped eating there.

June 20 2014 at 6:25 PM Report abuse rate up rate down Reply
Jo

I don't get it...Olive Garden sales drag??? Our Centerville, OH location is ALWAYS busy, and the food is very good. We were seated immediately last night, but not long ago, we waited 30 mins. to be seated.

June 20 2014 at 5:33 PM Report abuse +2 rate up rate down Reply
Spinnaker

What is the point of this story?. Darden has already sold Red Lobster to a SanFran financial company. Are you just "out to get them" for some reason.

I live in St Louis, near "The Hill" made famouse by Stan Musial, Yogi Berrra and Joe Garagiola, yet for consitently good stuff, its hard to beat Olive Garden.

June 20 2014 at 10:43 AM Report abuse +1 rate up rate down Reply
1 reply to Spinnaker's comment
dopey.obamite

It's because Darden was one of the chains that was up front about the effect the obamacare mandate would have on their hiring and scheduling of staff. They were one of many who said they would cut much of their help down to 29 hours.

obama unilaterally changed the law to delay the employer mandate until after elections, knowing this would be the case with many large businesses. The leftists went apesh!t crazy over Darden's annouoncement, but when the mandate kicks in, their boycott list is going to get one helluva lot longer.

June 20 2014 at 11:32 AM Report abuse -1 rate up rate down Reply