Olive Garden drags down Darden

by Monica Watrous
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ORLANDO, FLA. — Efforts to reignite traffic at Olive Garden are under way, but a same-store sales decline at the Italian casual dining chain weighed on first-quarter performance for parent company Darden Restaurants, Inc.

Still, the company said service enhancements, restaurant remodels and a new core menu launched in the past year have generated encouraging results.

“We are pleased with the progress we are achieving across our brands, particularly at Olive Garden,” said Gene Lee, president and chief operating officer of Darden.  “The Olive Garden brand renaissance is well underway, and the improvements we are seeing in guest satisfaction and traffic trends reinforce our confidence in Olive Garden's potential.”

For the quarter ended Aug. 24, Darden reported a loss in continuing operations of $19.3 million, which compared with earnings of $42.2 million, or 32c per share on the common stock, in the prior-year period.

Sales for the quarter rose 4% to $1,595.8 million from $1,531.3 million, reflecting the operation of 55 net new restaurants and an increase in same-restaurant sales at LongHorn Steakhouse as well as brands under the Specialty Restaurant Group.

During the first quarter, Darden completed the sale of its Red Lobster business and related assets to Golden Gate Capital for $2.1 billion. The brand’s operation results, separation costs and gain on sale were excluded from reported results of continuing operations.

U.S. same-restaurant sales for the first quarter increased 2.8% for LongHorn Steakhouse and 2.1% for the Specialty Restaurant Group, which includes The Capital Grill, Eddie V’s, Yard House, Bahama Breeze and Seasons 52. Same-store sales for Olive Garden dropped 1.3%.

Despite the decline, Darden said its brand renaissance at Olive Garden has delivered improved customer satisfaction scores and positive initial sales results from restaurants in the remodel pilot program. The addition of on-line ordering increased Olive Garden’s take-out business by 13% during the quarter, and results of testing tablet technology in several restaurants have been encouraging, Darden said.

“While we still have work to do, the actions we are taking are driving greater levels of performance and delivering benefits to both our shareholders and our guests,” Mr. Lee said. “We are confident that we have the right team and plan to build on this momentum.”

For the fiscal year, Darden expects flat to 1% U.S. same-restaurant sales growth for Olive Garden and 1% to 2% growth for LongHorn and the Specialty Restaurant Group. The company also projects diluted net earnings per share from continuing operations of $1.74 to $1.84 for the year.
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