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.

By Jonathan Berr Dec 6, 2011 2:27PM

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.

Post continues below.

Darden shares fell more than 12.4% on the news to close at $41.82.

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.




Tags: DRI
33Comments
Dec 6, 2011 3:46PM
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They have cut their portion sizes and raised the prices at our local one...I used to have enough food to take my lunch the next day, but not any more.  Not worth the $$ now.
Dec 6, 2011 4:25PM
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Was just there the other night...I am not surprised they are going out of business. I found it painfully expensive for the quality. I haven't been there in years prior and that will be the last time. I hope that their CFO reads these comments...maybe they could have the chance to save the business. NOT worth the money!
Dec 6, 2011 3:54PM
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Eating out  just about anywhere is to much after you give a decent tip...save money, eat at home.
Dec 6, 2011 3:49PM
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I quit going because they only put 2 olives in that big salad.... its the 'OLIVE' Garden.... Hello????
Dec 6, 2011 5:09PM
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my wife and i "were" big fans of the olive garden since we first went many years ago. every negative comment i've read here is right on. this is a company much as general motors, that let there early years go to their head, and then started to try to live on their early laurels, while cutting quality, quantity, and service. it is the way american companies do business folks. wake up and learn to cook at home. you'll be surprised just how well you can do. it isn't just olive garden, it's the big corporations like darden that have led us down this road. my advice, if you want to go out to eat, stay away from chains that have been bought up by corps. like darden. olive garden was pretty good before they sold out to darden
Dec 6, 2011 4:38PM
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last two time  i was there ,the food portion were to small i was still hungry when i left,the salad did not even have olive in it. wake up,and smell the rose.
Dec 6, 2011 5:15PM
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The reason why is failing is because OG does not care about their employees, and what happens when you don't take care of your employees........they can care less about the job.
dirty restaurants, low motivation, not friendly any more..... what will you expect......
Olive Garden's slump hurts Darden shares..Crying



Dec 6, 2011 6:59PM
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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.

Dec 6, 2011 3:55PM
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Of course Olive Garden's sales are tanking, their food is GROSS!!!  Cheap pasta swilling in so-so glop they call sauce isn't going to have people beating a path to their door.  we patronize locally owned and operated Italian restaurants where we get REAL food that really tastes great!!!!!
Dec 6, 2011 4:40PM
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Olive Garden dares call what they serve food? GAG, worst crap I've ever seen, cheese piled upon cheese piled upon cheese etc. Garbage all of it. What an insult to Italian food.
Dec 6, 2011 3:56PM
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I figured sales would take a dive when Olive Garden removed Pork Milanese from the menu. Also, around the same time, they took fries off the kids menu to offer "healthier" choices. Do they think all people go out to dinner to make healthy choices?
Dec 6, 2011 7:04PM
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have you been there lately & checked out their prices?  Makes you want to close the menu & queitly sneak out of the place. What makes them think their food is worth so much more than other resturants?
Dec 6, 2011 3:53PM
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The reason why OLIVE GARDEN is doing poorly is because of the "AMERICAN FLAG" debacle a few months ago.  I swore that day I would NEVER visit that establishment again even tho it used to be my favorite restaurant.
Dec 6, 2011 5:13PM
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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.

Dec 6, 2011 6:12PM
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Not all Olive Gardens are the same. It depends on the owners just like any other franchise, some are good and some stink. The one in our area is great and is busy all the time. In fact in can be difficult to get in at certain times due to the large crowds. Everybody nowadays paints which such a broad brush that if they get stung once the whole group is bad, but that is not always the case. We like our area Garden and will continue to patronize it as long as the food and service is good.
Dec 6, 2011 5:39PM
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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. 

 

Dec 6, 2011 7:09PM
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No American Flag allowed!!!!! Food has turned completely awful. Need any more reasons?
Dec 6, 2011 3:55PM
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Another place that will be going out of business.
Dec 6, 2011 5:29PM
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glad what goes around comes around, my last visit ordered seafood portifino they changed the price, now higher, there must have been 3 tiny salad shrimp in the seafood portofinovery small portions we will never return they think they can raise prices big time and at the same time shrink portion sizes,they forever lost us for all time they right there with dennys as being a bussiness we will never goto
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