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Red Lobster (Darden, $DRI) achieves rare same store sales "pop"

|Includes:Darden Restaurants, Inc. (DRI)
Red Lobster achieves rare “Same Store Sales Pop”
On September 6, Darden (NYSE:DRI) preannounced approximate Q1 earnings and same store sales. EPS of $.78 was $.09 below consensus, and even $.01 below the low end of any analysts range. The effects of Hurricane Irene was estimated at $.02 EPS.
Red Lobster achieved +10.7% same store sales, while Olive Garden was minus 2.9% and Long Horn Steakhouse at + 4.8%. This marked the third straight quarter of Olive Garden softness and a continued trend of Long Horn strength.
We define same store “pops” as dramatic restaurant same store trend movement of 1000 bpts, where there is clear movement and market capture change. In the crowded restaurant space, such “pops” are exceedingly rare, and this is the first such pop we’ve noted in 2011 among the chain restaurant majors.
The Q1 DRI breakout showed Red Lobster traffic up app. 13-15%, price up app. 1.5% and mix unfavorable app. 4-6%, based on monthly averages. Red Lobster featured a four course meal for $15, with selected seafood dishes and appetizer, and dessert add-ons.
It “worked” and sent a welcome surge of customers into restaurants. But it likely was a secondary cause of the earnings miss also, along with the weather, the Olive Garden sales miss and deleverage, and the unfavorable commodity costs shifts affecting the entire space for some time.     
Darden properly did pretest this offer and noted on the Q4 call that it achieved the traffic increases necessary to deliver incremental percentage and dollar gains. But the inevitable variance is what makes restaurants exciting.
When such promotions “work”, customers usually buy the promoted item and less of other higher margined items. An inherent customer traffic increase to hit breakeven is thus required. It looks like Red Lobster got it in June, but faded thereafter. We’ll update once we see the Q1 earnings release on September 28th and watch to see if there is a halo effect to future Red Lobster results.  
Stocks: DRI