UDATE: Darden: Conditions `Improving`; Sales Sequentially Rising
19 December 2009 - 3:18AM
Dow Jones News
Darden Restaurants Inc.'s (DRI) said conditions are improving
for the casual-dining restaurant company, with same-store sales
gradually getting better and some signs that consumers are shaking
off worries over job losses.
"Overall conditions are improving," Darden's Chairman and Chief
Executive Clarence Otis said on Friday's second-quarter earnings
call.
Executives at Darden, which operates the Red Lobster, Olive
Garden and LongHorn Steakhouse, laid out several hopeful signs that
the full-service restaurant industry could begin, after several
false-starts, a sustained improvement in sales and claw out of a
multi-year slump.
Investors took note, driving up shares of Darden $1.95, or 6%,
in recent trading to $34.60. Competitors like Brinker International
Inc. (EAT) rose 4.5% to $14.96, while smaller chains like Red Robin
Gourmet Burger Inc. (RRGB), Cheesecake Factory Inc. (CAKE) and
Buffalo Wild Wings Inc. (BWLD) also posted solid gains.
Darden, which late Thursday said second-quarter earnings rose 1%
on lower costs, said that same-store sales in December are so far
showing another month of sequential improvement. While it is
partially due to an easy comparison from last year, Otis said it
was a promising start to the current quarter.
"We expect that this would be the beginning of another quarter
of sequential improvement," Otis said.
While lower prices for ingredients and utilities are helping
profits, Darden's brands still have a hole to climb out of on
sales. Same-store sales for its three largest brands fell 3.9% in
its second-quarter, including an impact for a calendar shift that
brought Thanksgiving into the quarter.
Darden's laggard remained Red Lobster, stung by a promotional
strategy that company executives admit lacked a compelling price
point. The seafood chain focused on its seasonal Endless Shrimp
promotion, priced at $15.99 to $16.99, at a time when other chains
could point toward more attractively priced deals, including at
Darden's other brands. Darden executive said future promotions at
the seafood chain would highlight lower-priced entrees.
Still, the company pledged to stay away from much of the deep
discounts that have spread across the broader casual-dining sector,
hoping to keep its average check up and not train its customers to
pay less.
Discounts also appear to be waning to a degree, as Darden said
industry wide number showed the average check per diner improving
slightly and traffic also improving, implying that guests aren't
coming in just for discounts. "It was a different dynamic in terms
of what was leading to an increasing guest count," Otis said.
Darden also saw improvement at its higher-end brand Capital
Grille, a sign that the higher-end consumer and business spending
is picking up.
Darden also said it was also on track for its full-year earnings
target, even as it forecast same-store sales to fall 3% to 4% for
the year.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194;
paul.ziobro@dowjones.com
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