Darden Drops As Olive Garden’s Troubles Continue

Olive Garden is a simple restaurant concept that has turned into to be a serious problem for Darden Restaurants (DRI), which owns the chain along with others like Red Lobster and LongHorn Steakhouse.
Today, Darden lowered its EPS projection for the second quarter to 41 cents per share, below analysts’ expectations for 54 cents. The company also lowered its sales and profit forecast for 2012; it now expects EPS to grow 4% to 7%, down from 12% to 15% previously. Sales growth is now projected to come in at 6% to 7%, down from 6.5% to 7.7% previously. Shares fell 11% in morning trading.
Olive Garden’s same-restaurant sales have continued to fall, and the chain is expected to post a 2.5% drop for the current quarter. Same-restaurant sales actually fell 5.7% in November, accelerating from a 2.5% drop in October, according to a Darden release.
“At Olive Garden, we’re addressing the erosion in one of the brand’s essential attributes, its value leadership in casual dining,” said Chairman and CEO Clarence Otis. “In working to re-establish that historical value advantage, Olive Garden more strongly emphasized containing check growth this quarter than in prior periods, and that was reflected in its promotion and in-restaurant merchandising tactics. This helped temper the guest count decline for the quarter, but not as much as expected.As a result, there was more earnings pressure than anticipated.”