Darden Restaurants 1Q Profit Up 20%; Red Lobster Struggles

Darden Restaurants Inc.'s first-quarter earnings increased 20% as the casual-dining giant's same-store sales rose at Olive Garden and LongHorn Steakhouse (Ziobro). Shares of Darden dropped approximately 2.2% to $43.07 as investors became cautious over Red Lobster's sales. "The seafood chain's sales fell 1.7% in the quarter, resulting in Darden's overall sales missing estimates, though profits beat expectations as labor costs were held in check. Darden also backed its outlook for the year" (Ziobro).

Darden sees the recovery as a difficult journey especially as consumers are still worried over the stability of the recovery and the slow pace of new job creation. By the end of the quarter on August 29, the company posted a profit of $113.1 million, or 80 cents a share from a year earlier. "Revenue increased 4.2% to $1.81 billion, as combined same-restaurant sales at its three main chains grew 1.1%" (Ziobro).

Red Lobster's store sales have recently declined 7.9% in the past year. This decline is most certainly due to the new competition of other sea-food restaurants opening in areas near Red Lobster. "Darden said Red Lobster's sales were hurt after it started its popular Endless Shrimp promotion two weeks later this year than a year earlier" (Ziobro). This new promotion played a major role in the downward trend of the Red Lobster store sales in the past year. "Some analysts were hoping that another promotion, Crabfest, which offered a selection of meals featuring crab, would have provided a stronger boost" (Ziobro).

During the recession, Darden generally has avoided discounts and has instead he offers short-term promotions that highlight some of the unique attributes of its brands (Ziobro). This plan by Darden has helped protect companies profits, while other chains have focused on price-driven deals. In conclusion, the competitive landscape changed during the recession due to the fact that promotions for these restaurants have been causing sales to decline in the past few years.

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