News Column

As earnings disappoint, Darden says Olive Garden on the right track

June 20, 2014

By Sandra Pedicini, Orlando Sentinel



June 20--While serving up another disappointing earnings report Friday, Darden Restaurants said its struggling Olive Garden chain is on the verge of a turnaround.

The chain is rolling out improvements, executives told analysts, and sales at established restaurants, which have been in decline for the past couple years, have been flat so far this month.

"The brand renaissance at Olive Garden is clearly taking hold as you see improvements," Chief Financial Officer Brad Richmond said.

Orlando-based Darden's fourth-quarter profit was $86.5 million -- a 35 percent decline from the previous year. Earnings were 65 cents per share.

Removing costs associated with its impending sale of the Red Lobster chain and other one-time charges, earnings were 84 cents per share. Analysts had expected 94 cents.

Olive Garden's sales declined 2.7 percent. The number of guests dropped 6 percent in March but became progressively better. Olive Garden aggressively used coupons to lure customers later in the quarter, which ended in May. The chain offered $10 off $30 purchases starting in April, with the latest expiring June 15. It also offered coupons shaving 20 percent off the entire table's bill.

The chain is trying to boost lunch business by testing a guarantee of a quick meal, Darden Chief Operating Officer Gene Lee said. Darden would not elaborate.

Lee said Olive Garden will add more healthful options, focus heavily on staff training and make its menu easier to navigate.

Olive Garden also plans to remodel about 300 older restaurants, where sales are lower than at newer locations. Sales have improved at the first remodeled restaurant in Fort Walton Beach. Another remodeling project in Winter Park should be completed this summer.

The chain will have online ordering available at all its more than 800 restaurants in August. Results have been encouraging, Lee said, citing a 10 percent increase in to-go sales at restaurants that now have the online ordering.

Olive Garden also will try to spur more wine sales, giving servers access to mobile apps to help them suggest meal pairings.

Sanford C. Bernstein & Co. analyst Sara Senatore noted profit margin as a percentage of sales declined at both Olive Garden and LongHorn.

"Taken together, we believe that these results will continue to raise questions about the underlying health of Darden's most important brands," she wrote in a research note.

At Red Lobster, which Darden is selling to San Francisco-based Golden Gate Capital, sales of $664 million declined 5.6 percent.

Darden's stock closed at $47.58 Friday, down 3.9 percent.

Darden's total quarterly sales\ were essentially flat at $2.32 billion.Full-year revenue was $8.8 billion, a 2.4 percent increase. Profit was $286.2 million, or $2.15 a share, compared with $3.13 the previous year.

Darden also owns Seasons 52, Yard House, Eddie V's, Bahama Breeze and Capital Grille.

spedicini@orlandosentinel.com or 407-420-5240

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(c)2014 The Orlando Sentinel (Orlando, Fla.)

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Source: Orlando Sentinel (FL)


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