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Darden 3Q profit grows 8.5 pct as customers spend

Bree Fowler, AP Business Writer

Darden Restaurants Inc. said Friday that its fiscal third-quarter profit rose 8.5 percent. Increases in food costs slowed and warm weather brought more people to its restaurants, including its struggling Olive Garden chain.

But its shares fell almost 2 percent after its executives told investors on a conference call that shoppers remain cautious amid an uncertain economic environment of spiking gas prices and a weak job market. Executives stressed Darden will continue to push promotions like the $12.95 three-course special offered at Olive Garden.

"The need for affordability continues, particularly in households that are more economically challenged," said Drew Madsen, Darden's president and chief operating officer.

For the three months ended Feb. 26, Orlando, Fla.-based Darden earned $164.1 million, or $1.25 per share, up from $151.2 million, or $1.08 per share, in the same quarter the year before.

Revenue rose 9 percent to $2.16 billion from $1.98 billion.

The results were slightly ahead of Wall Street predictions. Analysts, on average, expected a profit of $1.24 per share on $2.15 billion in revenue, according to a FactSet poll.

Darden has been reworking its menu and prices at Olive Garden, which has struggled recently with a decline in customers — revenue at restaurants open at least a year was flat in third quarter a year ago and fell 2.5 percent in the September-November period. The metric improved in the most recent quarter, up 2 percent from December through February. Olive Garden accounts for almost half of the company's total revenue.

Revenue at restaurants open at least a year is considered a key measure of performance, because it excludes the impact of restaurants that open or close during the year.

The company said it is pleased with recent improvements at the chain, its biggest. Lower costs for staff and other restaurant expenses helped boost operating profit at the chain, while traffic rose for all three months.

The revenue measure rose 6.7 percent at LongHorn Steakhouse and 6 percent at seafood chain Red Lobster. The company said that Lent, which began in late February this year, helped sales at Red Lobster. Many Catholics don't eat meat on Fridays during Lent, and Red Lobster ties its annual LobsterFest promotion to the start of the 40-day season.

At all three chains, the metric rose 4.1 percent and increased 5.8 percent at the company's specialty restaurant group, which includes The Capital Grille and Bahama Breeze.

Looking forward, Darden said it expects the revenue metric to grow 2.5 to 3 percent at LongHorn, Red Lobster and Oliver Garden, and plans to open 85 to 90 new restaurants this year. The company backed an earlier prediction for earnings from continuing operations to increase between 4 percent and 7 percent on revenue growth of between 7 percent and 7.5 percent.

The guidance implies adjusted earnings of $3.55 per share to $3.65 per share and sales of $8.03 billion to $8.06 billion for the fiscal year ending in May 2012.

Analysts expect a profit of $3.60 per share on $8.05 billion in revenue.

Shares were down 91 cents to $50.92 in late trading.


AP Retail Writer Anne D'Innocenzio contributed to this report in New York.