Industry News | September 18, 2008

Powerhouse Darden Slips in Q1

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Events at Wall Street’s biggest investment banks this week overshadowed other disappointing financial news in the foodservice sector. Darden, the world’s largest full-service restaurant company, reported its first quarter results Tuesday—diluted net earnings per share plummeted 21 percent, leaving the company to report $82.4 million in net earnings ended August 24.

“Economic and consumer dynamics were much weaker this quarter than we had anticipated,” says Clarence Otis, the company’s chairman and CEO, in a statement. “As a result, we fell short of our sales and earnings targets for the quarter.”

Not surprising, the usual suspects were named as culprits: food costs, energy costs, and weakening sales. And their victim was Darden’s bottom line. Even the 21 percent sales increase from LongHorn Steakhouse and The Capital Grille, brands Darden acquired in its October 2007 takeover of RARE Hospitality International Inc, couldn’t save the quarter. But even for those two restaurants, it wasn’t phenomenal sales that drove the increase. Instead, it was the combined 30 new units the brand opened that offset a same-store sales decrease of nearly 5 percent at Longhorn Steakhouse and a nearly 9 percent same-store sales decrease at The Capital Grille.

And there was even bad news from some of the company’s usual top performers. Red Lobster experienced a 3.7 percent decrease in same-store sales, ending with $646 million in sales. In a statement released by the company, Darden blames rising labor costs and slowing food and beverage sales for the brand’s poor performance.

Bahama Breeze, a 23-unit Caribbean-themed concept owned and operated by the company, also saw its sales slip from the same quarter last year. First-quarter same-store sales for the brand were $36 million or a 3.7 percent decrease from the year before.

One brand, however, stole the show during the company’s Tuesday call with investors. Despite the poor performance of its sister concepts, Olive Garden managed to hit a 8.1 percent same-store sale increase over last year, pushing the brand to $811 million in sales for the first quarter.

“Olive Garden delivered especially strong performance and achieved its 56 th consecutive quarter of same-restaurant sales growth while also adding nine net new restaurants this quarter,” says Drew Madsen, president and COO of the company, in a statement.

Despite the company’s first-quarter performance, company execs maintain that Darden is still at the top of the industry. “Despite the challenging environment this quarter, our brands produced results that were competitively strong given year-ago same-restaurant comparisons that were well above industry averages,” Madsen says.

--Blair Chancey