Darden to slow down Olive Garden openings
- Associated Press
- February 25, 2013 - 5:22 PM
NEW YORK - Darden Restaurants is pulling back on price increases and the pace of new restaurant openings for its flagship Olive Garden chain, as the company works to update its struggling brands.
Darden will open about 15 new Olive Gardens annually for the next couple of years, down from the 36 per year that it had been opening. The number of new openings a year could fall even lower after 2014 if business conditions worsen, the company said Monday.
To focus on attracting more customers, Darden will also hold down price increases to about 1 percent at its three biggest chains, which include Red Lobster and LongHorn Steakhouse. It had previously hiked prices by about 2 percent to 3 percent.
"The price premium attached to casual dining is getting tougher to justify," Drew Madsen, Darden's chief operating officer and president, said at the company's investor day. In years past, casual dining restaurants were seen as having superior service. But fast-food chains have since stepped up their offerings, making it harder to convince people to pay more for table-service.
Darden also said Monday that it expects its earnings per share in fiscal 2014 to range between a decline of 3 percent to growth of 3 percent when factoring in variables such as an increase in performance pay and costs associated with complying with new health care regulations. The higher performance pay is the result of lower sales targets for restaurant-level managers and other executives to reflect more realistic goals, given the results in recent years.
Not including those variables, the company said its earnings per share are expected to increase between 5 percent and 10 percent from this fiscal year.
After years of steady growth, casual dining restaurants have struggled as people pull back on spending and increasingly flock to less-expensive chains such as Chipotle and Panera. Darden said its customer traffic is down 7.7 percent since 2008.
Last week, the company warned that it expects its third-quarter profit to come in below Wall Street expectations and cut its outlook for the fiscal year.
Revenue at Olive Garden, Red Lobster and LongHorn Steakhouse locations open at least one year is expected to fall 4.5 percent in the quarter that ended Feb. 24, indicating recent menu and marketing revamps have yet to pay off.
CEO Clarence Otis said the first half of the fiscal third quarter was "encouraging" but higher payroll taxes and rising gas prices, along with severe winter weather, sent sales sliding in February. Darden Restaurants Inc. expects net income from continuing operations in December-February period will be $1 to $1.02 per share, below the $1.12 per share analysts had expected, according to FactSet.
For the fiscal year ending in May, Darden predicted revenue at restaurants open at least one year to rise 6 to 7 percent across its chains, with a drop of 1.5 to 2.5 percent for the division containing the Red Lobster, Olive Garden and LongHorn Steakhouse chains.
The company cut its outlook for fiscal 2013 earnings from continuing operations to $3.06 to $3.22 per share, from a December prediction of $3.29 to $3.49 per share. Analysts had expected $3.38 per share.
Darden, based in Orlando, Fla., has about 2,100 restaurants, including about 820 Olive Garden locations.
Its stock ended Monday down 98 cents, or 2 percent, at $45.25 amid a broad market downturn.
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