UPDATE 3-Darden shares down on Red Lobster results

* Q2 EPS 54 cents matches Street view

* Red Lobster results disappoint

* Shares fall 3 percent in extended trade
(Adds outlook, details on promotion, analyst comment; updates
share activity)

By Lisa Baertlein

LOS ANGELES, Dec 20 (BestGrowthStock) – Darden Restaurants Inc’s
(DRI.N: ) shares fell 3 percent after a promotional slip-up led
to disappointing sales at its Red Lobster chain.

The company, which also owns Olive Garden and LongHorn
Steakhouse, narrowed its full-year target for same-restaurant
sales growth at its “Big Three” brands to 2 percent, versus a
prior target of growth between 2 percent and 3 percent.

Darden said sales at Red Lobster restaurants open at least
16 months fell 1.6 percent during its fiscal second quarter,
ended Nov. 28. That missed some analysts’ calls for an

Company spokesman Rich Jeffers said Darden had introduced
Red Lobster’s “Endless Shrimp” promotion in September at $16.99
and $15.99, depending on the geographic market. But sales and
customer visits fell that month, so it took the price down to
$15.99 across all markets and trumpeted that price in its
advertising, which appeared to help results recover.

Jeffers added that the promotion started two weeks later
and ran for a week less than a year ago.

While U.S. unemployment remains high, fewer people are
losing jobs and those who are still working have been more
confident about spending money at casual dining chains like
those operated by Darden, fueling a modest industry rebound.

Sales at established restaurants were up at 2 percent at
Olive Garden and 6.8 percent at LongHorn Steakhouse during the

Susquehanna analyst Rachael Rothman, who had expected Red
Lobster’s promotions to boost sales in the latest quarter, was
looking for sales at established Olive Garden, Red Lobster, and
LongHorn restaurants to be up 2.5 percent, 1.5 percent and 4
percent, respectively.


Despite tempered expectations for same-restaurant sales,
the company repeated its forecast for full-year earnings per
share growth from continuing operations of 14 percent to 17

Darden said combined same-restaurant sales at Olive Garden,
LongHorn and Red Lobster were up 1.4 percent, a bigger rise
than the 1 percent increase in the Knapp-Track benchmark for
U.S. same-restaurant sales, excluding Darden.

Second-quarter income from continuing operations jumped
almost 24 percent to $75.8 million, or 54 cents per share,
matching analysts’ average estimate, according to Thomson
Reuters I/B/E/S.

Quarterly sales from continuing operations rose to $1.73
billion from $1.64 billion.

Darden is one of the best-run restaurant chains and its
operating margin improved during the latest quarter, helped in
part by lower labor costs, said Baird analyst David Tarantino.

“Despite the mixed Q2 report, we remain confident that
(Darden) is well positioned to produce healthy operating
results in upcoming periods,” Tarantino said in a client note.

Darden executives will host a conference call with analysts
on Tuesday morning.

Shares of Darden, which also owns the upscale Capital
Grille steakhouse chain, fell to $48.89 from their close of
$50.43 on the New York Stock Exchange.
(Reporting by Lisa Baertlein; Editing by Tim Dobbyn and Steve

UPDATE 3-Darden shares down on Red Lobster results