Darden Restaurants Q1 Results Miss Estimates, Plans To Cut Costs

(RTTNews) - Darden Restaurants, Inc. (DRI) Friday reported a decline in its first-quarter profit, reflecting higher costs and expenses, despite about 6 percent growth in sales. Both earnings per share as well as revenues missed analysts' expectations.

The company still expects net earnings per share decline of 3 to 5 percent for fiscal 2014, but said it is taking steps to reduce its annualized operating support spending by about $50 million.

Separately, Darden announced that Drew Madsen, its president and chief operating officer, has decided to retire at the end of the second quarter. He will be succeeded, effective immediately, by Gene Lee, who currently serves as the president of Darden's Specialty Restaurant Group.

Lee joined Darden in 2007 following the acquisition of RARE Hospitality where he had served as president and COO since 2001.

Following a comprehensive review, the company is taking steps to reduce its annualized operating support spending by about $50 million through a combination of workforce reductions and program spending cuts.

Looking ahead, Clarence Otis, chairman and chief executive officer of the company said, "Following our industry's pronounced spikes up and down in same-restaurant sales last winter and spring, the results this summer are further evidence that we can expect sharper sales volatility as the slow and uneven recovery in the economy persists."

The Orlando, Florida-based full service restaurants operator said its net earnings for the first quarter declined to $70.2 million or $0.53 per share, from $110.8 million or $0.85 per share in the previous year.

On average, 27 analysts polled by Thomson Reuters expected the company to earn $0.70 per share for the quarter. Analysts' estimates typically exclude special items.

Quarterly sales grew 6.1 percent to $2.16 billion, but came below analysts' estimate of $2.20 billion.

The company said the increase reflected same restaurant-sales growth of 0.5 percent for its Specialty Restaurant Group, the addition of 46 Yard House restaurants and the operation of another 103 net new restaurants compared to the first quarter of last year.

However, this was offset by a blended same-restaurant sales decline of 3.3 percent for Olive Garden, Red Lobster and LongHorn Steakhouse, the company said.

In the first quarter, U.S. same-restaurant sales increased 3.2 percent at LongHorn Steakhouse, while declined 4 percent at Olive Garden and 5.2 percent at Red Lobster.

"And, while blended traffic for our three large brands trailed the industry the first two months of the quarter, we are encouraged that in August same-restaurant traffic at both Olive Garden and LongHorn was ahead of the industry and Red Lobster's traffic was in line with the industry," Otis said.

Total costs and expenses advanced to $2.07 billion from $1.89 billion a year ago.

For fiscal 2014, Darden continues to expect net earnings per share to decline between 3 and 5 percent compared to fiscal 2013, which is consistent with the outlook provided in June.

The board has also declared a quarterly dividend of $0.55 per share. DRI closed Thursday's regular trading session at $49.30 on the NYSE. In the pre-market activity on Friday, the shares are down 4.42 percent.