Darden Restaurants Inc.
(
DRI
) recently cut its revenue and earnings per share growth outlook
for 2013 citing underperformance at the same-store sales of three
of its brands -Olive Garden, Red Lobster and LongHorn Steakhouse
in the second quarter.
Failure of promotional offer amid a value-sensitive environment
primarily spoiled Darden's party in the second quarter of 2012.
Apart from that, Superstorm Sandy and the transaction and closing
costs related to the purchase of Yard House, USA Inc. were
unfavorable to Darden this quarter, affecting earnings per share
by five cents and a penny, respectively.
Orlando, Florida-based Darden foresees its sales growth for
fiscal 2013 in the range of 7.5- 8.5% (prior expectation was 9.0
-10.0%) based on about -1.0-0.0% (prior increase of 1-2%) in the
blended same-store sales estimate for its three core brands. The
acquisition of Yard House will likely stimulate overall
sales.
Darden also expects to earn from continuing operations $3.29-
$3.49 per share for fiscal 2013, which includes approximately
8-10 cents of transaction and closing costs associated with the
purchase of Yard House USA, Inc. Earlier, Darden had expected its
earnings per share to increase in the range of 5- 9% that
translates to around $3.76- $3.90.
Darden now expects to report 25-26 cents in earnings per share
from continuing operations in the second quarter. The second
quarter's promotional offers were in line with the successful
offers Darden made earlier. However, the offers lacked the
innovation as offered by its competitors. Additionally, the
promotions did not suit financially weak customers at the current
level.
This is not the first time promotional failure affecting Darden.
Notably, in fourth-quarter 2012, the Taste of Tuscany promotion
that started in May and continued into June was less effective
and became one of the eventual causes for same-store sales
decline.
In the second quarter, Olive Garden reported negative comps in
all three months while Red Lobster's comps growth declined over
two months with October witnessing the sharpest fall of 7.0%.
LongHorn Steakhouse which was a better-placed brand till
recently, also delivered negative comps in each month of the
quarter confirming the wavering consumer confidence in the U.S.
However, in order to improve the impact of its unsuccessful
promotions, management is bringing about changes in dishes and
services. Furthermore, management remains keen on modification of
its promotional calendar and deployment of brand-appropriate
affordability to match the consumers' wallets as well as taste
buds.
Darden, which competes with
Kona Grill Inc.
(
KONA
) and
Brinker International Inc.
(
EAT
), currently carries a Zacks #4 Rank that translates into a
short-term 'Sell' rating. We also maintain our long-term Neutral
recommendation on the stock.
DARDEN RESTRNT (DRI): Free Stock Analysis
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