Darden Restaurants Inc. (DRI), which is selling its Red Lobster chain, said quarterly profit fell 35 percent and forecast annual earnings that trailed analysts’ estimates amid a continued slump in Olive Garden sales.
Net income for the fiscal fourth quarter dropped to $86.5 million, or 65 cents a share, from $133.2 million, or $1.01 a share, a year earlier, according to a statement from the Orlando, Florida-based company. Excluding certain items, profit was 84 cents a share. Analysts estimated 94 cents, the average of 24 projections compiled by Bloomberg.
Profit from continuing operations this fiscal year will be as much as $2.30 a share, Chief Financial Officer Brad Richmond said during a conference call today. Analysts estimated $2.51, on average.
Darden has struggled to attract diners at Olive Garden, its biggest chain, as Americans frequent newer restaurants and fast-casual eateries that offer high-quality fare at lower prices. Same-store sales at Olive Garden fell 3.5 percent, compared with a 5.4 percent drop in the prior quarter. Analysts estimated a 2.3 percent decline, according to Consensus Metrix.
“The key metric –- comps at Olive Garden –- continued to disappoint, suggesting that the core business remains in a difficult position,” Sara Senatore, a New York-based analyst at Sanford C. Bernstein, wrote in a research note.
Revenue for the period ended May 25 was $2.32 billion, up from $2.3 billion a year earlier, the company said in the statement. That compared to analyst estimates of $2.33 billion.
The company in May agreed to sell the underperforming Red Lobster brand to Golden Gate Capital for $2.1 billion, giving it a jolt of cash to focus on reviving Olive Garden’s growth. Activist investors have objected to the move and pressured Darden to replace board members and spin off its properties as an independent real estate investment trust.
Darden will get about $1.6 billion in net cash from the Red Lobster sale, which will close in the fiscal first quarter, it said in today’s statement. The company plans to use about $1 billion to pay debt, while the remainder will be used to fund stock repurchases in fiscal 2015.
Same-store sales for Olive Garden will advance as much as 1 percent in fiscal 2015, the company said on the call. Darden has been investing in digital and social media, radio advertising and an online ordering system to attract millennial diners and boost sales.
Sales at LongHorn Steakhouse restaurants open at least 16 months rose 2.4 percent in the quarter. Analysts estimated a 1.1 percent gain, according to Consensus Metrix, a researcher owned by Wayne, New Jersey-based Kaul Advisory Group. Same-store sales are considered an indicator of a retailer’s performance because they include only older, established locations. LongHorn comparable-store sales will increase between 1 percent and 2 percent in fiscal 2015, the company said.
Darden has about 1,500 restaurants, excluding Red Lobster.
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