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Darden attracts more customers to Olive Garden, Red Lobster with deals, promotions

NEW YORK, N.Y. – If the free breadsticks and unlimited soup and salad aren’t enough, Olive Garden is hitting the gas on other promotions to get customers through its doors.

Darden Restaurants Inc., which has been struggling to hold onto customers in recent years, said deal offers like “2 for $25” dinner special helped drive up customer traffic at its flagship Olive Garden and Red Lobster chains in the latest quarter. The company said it will keep stressing the affordability of its food in the year ahead to attract more diners.

The strategy raises concerns among some investors, who worry that it’s a short-term fix that only hurts profit margins. Shares of Darden fell $1.11, or 2.2 per cent, to close at $50.12 Friday.

But in a call with analysts, CEO Clarence Otis said that boosting customer traffic is a priority for the company, even if it means sacrificing profit margins for a time.

“We need to do what we need to do,” Otis said.

Darden’s struggles to hold onto customers partly reflect the shifting restaurant industry. Casual dining chains were hit hard by the economic downturn, which made people more careful about eating out. Competitors like Applebee’s, which is owned by DineEquity Inc., responded by rolling out a “2 for $20” deal during the depths of the recession. But Darden has conceded that it was slow in emphasizing value. Since 2008, its customer traffic is down about 8 per cent.

At the same time, casual dining chains are also contending with changing eating habits. So in addition to underscoring value, Darden is also trying to update its menu choices to better reflect the type of food people want.

Last year, for example, it began adding lighter dishes to the Olive Garden menu. The company said they’re already capturing about 10 per cent of orders and that it plans to add more such options going forward.

For the quarter, Darden said net income fell 12 per cent on rising costs and expenses. It earned $133.2 million, or $1.01 per share, compared with $151.2 million, or $1.15 per share, a year ago.

Removing costs and purchase accounting adjustments tied to its acquisition of Yard House USA Inc., earnings were $1.02 per share, 2 cents shy of Wall Street estimates.

Revenue climbed 11 per cent to $2.3 billion, topping the $2.27 billion Wall Street expected.

Comparable sales at its Olive Garden, Red Lobster and LongHorn Steakhouse restaurants rose 2.2 per cent, helped by an uptick in customer traffic.

Sales at The Capital Grille locations open at least a year rose 4.5 per cent. The metric climbed 4.3 per cent at Eddie V’s and 1 per cent at Seasons 52. These restaurants are part of Darden’s specialty restaurant group.

For the year, Darden earned $411.9 million or $3.13 per share. Adjusted earnings were $3.22 per share.

Annual revenue increased 7 per cent to $8.55 billion.

Darden said that it expects fiscal 2014 adjusted earnings per share to be up between 4 per cent and 6 per cent. Revenue is anticipated to climb 6 per cent to 8 per cent, including an additional quarter of sales from Yard House. That implies earnings of $3.35 to $3.41 per share on revenue of $9.06 billion to $9.23 billion.

Wall Street had been looking for earnings of $3.19 per share on revenue of $8.52 billion.

The company, based in Orlando, Fla., also raised its quarterly dividend 10 per cent, to 55 cents per share.