September 20, 2013

Revamps for Olive Garden, Red Lobster fall flat

By Candice Choi / The Associated Press

NEW YORK — Darden can't seem to convince more people to sit down for a meal at its Olive Garden and Red Lobster restaurants.

The company reported a sharply lower quarterly profit on Friday that missed Wall Street expectations, with sales down at its two biggest chains despite ongoing attempts to revamp their menus with lighter, cheaper options. Darden said it would slash costs to prepare for future challenges, in part by reducing its work force.

It also said that its president and chief operating officer, Drew Madsen, was retiring and would be succeeded by Gene Lee, effective immediately. Lee headed Darden's specialty restaurants such as The Capital Grille and Bahama Breeze, which had fared relatively better than the company's flagship chains.

The shakeup comes as Darden Restaurants Inc. struggles to keep pace with a shifting industry, with more people heading to chains such as Chipotle that offer food perceived to be higher quality at relatively cheaper prices. As traffic has declined at Olive Garden and Red Lobster over the years, Darden has been trying to win back diners with lighter dishes and promotions intended to underscore the affordability of its food.

Olive Garden, for example, recently rolled out "small plates" that can work as appetizers or side dishes. TV ads have ditched the Old World atmosphere of the past in favor of a more upbeat, modern feel. Recent promotions included two dinners for $25 and its long-running Never-Ending Pasta deal.

Despite the moves, sales fell 4 percent at Olive Garden restaurants open at least a year in the latest quarter. The figure was down 5.2 percent at Red Lobster, where the company added more non-seafood options to attract a broader audience. Darden has blamed its troubles on a variety of factors, including more cautious spending by consumers.

In its smaller specialty restaurant group, sales edged up 0.5 percent at locations open at least a year. The metric is a key gauge because it strips out the potentially distorting impact of newly opened and closed locations.

To cut spending by about $50 million a year, the company says it's reducing its workforce by between 80 to 85 positions, as well as making program cuts. A representative said the personnel cuts will not be at the restaurant level.

For the three months ended Aug. 25, Darden said it earned $70.2 million, or 53 cents per share, which was far short of the 70 cents per share analysts expected. A year ago, the company earned $110.8 million, or 85 cents per share.

Sales rose to $2.16 billion, helped by new locations. But that was still short of the $2.19 billion Wall Street expected, according to FactSet.

Darden's stock fell almost 5 percent to $46.84 in morning trading. The stock is down 10 percent over the past year.

Looking ahead, the company expects combined sales at Olive Garden, Red Lobster and LongHorn Steakhouse restaurants open at least a year to be flat, which is on the low end of its previous forecast for growth to be flat to up 2 percent. Darden stood by its earnings per share forecast of a 3 to 5 percent decline.

Darden Restaurants Inc., based in Orlando, Fla., said Madsen will work with Lee and Darden's other executives on the transition until he retires at the end of its second fiscal quarter.

Madsen, 57, joined the company in 1998 as executive vice president of marketing for Olive Garden. He became COO in December 2004.

Lee joined Darden in 2007. Kim Lopdrup will take over leadership of the company's specialty restaurant group and continue to lead its new business development initiatives.

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