Olive Garden's slump hurts Darden shares
A drop in business at the Italian-style dining chain is expected to slow profit and sales growth in fiscal 2012.
Updated: 5:41 p.m. ET
Shares of Darden Restaurants (DRI) plunged 12.4% Tuesday after the company cut its earnings outlook, having failed to ignite consumer interest in its struggling Olive Garden chain.
Darden, the world's largest full-service restaurant company, expects earnings per share growth from continuing operations of 4% to 7% for fiscal 2012, down from an earlier forecast of 12% to 15%. Sales are now expected to rise 6% to 7%, below a previous estimate of 6.5% to 7.5%. The Orlando, Fla. company blamed its problems on the dismal performance at the 750 Olive Garden locations.
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According to Darden, Olive Garden posted a 5.7% decline in November same-store sales while Red Lobster and LongHorn Steakhouse, also owned by Darden, rose 2.8% and 9.1%, respectively. Olive Garden struggled despite heavy promotion of the brand by Darden. CEO Clarence Otis is confident, however, that Olive Garden is on the verge of a turnaround because of investments the company is making.
"We're confident these investments will help Olive Garden get back on track, and we're well positioned to make them," he said in a press release. "Olive Garden continues to be a value leader and has a strong business model. Further, there's good momentum at our other brands and there's likely to be considerably less cost inflation during the remainder of this fiscal year compared to prior year as costs stabilize at current levels."
Otis's optimism comes as casual dining chains continue to struggle with rising food costs and low consumer confidence, which, however, has recently shown some improvement. Cheesecake Factory (CAKE) reported disappointing results in October. Friendly's, another casual chain, recently filed for bankruptcy. Closely held Dave & Buster's is reportedly undergoing a major rebranding.
Darden's stay in Wall Street's doghouse may be short. The average price target of analysts is $55.54. Darden is expected to earn 54 cents in the current quarter on $1.83 billion in revenue. Final fiscal second quarter results are due to be issued Dec. 16.
dirty restaurants, low motivation, not friendly any more..... what will you expect......
I stopped going there when I heard that they refused to display the American Flag because it might offend the other patrons. I will not got to Red Lobster or Longhorns either. THIS IS AMERICA,
and if you can't fly the american flag.then you don't need my families business.
OG is frozen microwave meals. The wait staff calls the food preparers "chefs", what a joke. It's been several years since I've had a meal at OG, don't plan on eating there ever again. It's no surprise Darden shares have dropped.
Not surprising news. Just went there for lunch, tho I swore I'd never go back after last 2 trips. Keep waiting for it to get better, but it's just not happening. Bread sticks tasted old & dry, small amount of salad, Zuppa soup was mainly broth w/very little sausage/potatoes. Chicken in soup on last trip was full of fat; so gross I couldn't finish. Customers deserve quality. No more chances.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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