Costs Hit Darden Profits

Darden Restaurants Inc. (DRI) said Tuesday that second-quarter earnings fell short of expectations amid soft sales and higher costs. The news, released after the closing bell, sent shares down 7.5% to $33.60 AH, after rising 1.3% in the regular trading session. The company reported earnings of $43.5M ($0.30/share) down from $61.7M ($0.41/share) a year ago, even as sales climbed to $1.522B from $1.298B. "While we are pleased that our sales growth this quarter once again outpaced our industry, we did see some sales softness because of what continued to be a difficult consumer environment," said CEO Clarence Otis. "As a result of this softness and a tougher than anticipated cost environment, we were unable to meet our expectations for earnings growth." Analysts had expected earnings of $0.50/share and revenue of $1.54B, on average.

The company said its acquisition of RARE Hospitality and other items cut profits by about $0.12/share. Sales costs rose 20% including 22% higher food and beverage prices and a 16% rise in labor costs. Same-store sales at Olive Garden and Red Lobster rose 3.2% and 0.1%, respectively.
Looking ahead, Darden said it expects EPS growth of just 2%-4% including acquisition-related costs, or 7%-9% without. That implies earnings ranges of $2.58-$2.63/share and $2.71-$2.76/share, respectively. It expects revenue to grow 19%-20%, which implies a range of $6.63B-$6.68B. The average analyst estimates are for earnings of $2.82/share and revenue of $6.7B.

Sources: Press release, Reuters, AP, AP II

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