Darden Restaurants Inc.'s efforts to spruce up Olive Garden's lagging sales, including national promotions and cost cuts, were "less effective than anticipated," the company said while announcing its fiscal fourth-quarter earnings Friday.
Similar tactics were also uninspiring at Darden's seafood chain, Red Lobster.
After a brief respite during the spring, Italian brand Olive Garden returned to its pattern of poor same-store sales, which tumbled 1.8% over the quarter ended May 27 compared with a year earlier, while customer traffic fell 7.5% in May. Red Lobster's same-store sales slid 3.9% over the quarter and customer traffic in May slumped 7.8%
With sales of $904 million, Olive Garden is Darden's largest chain. Red Lobster's $681 million in revenue makes it the second largest.
In response, Chief Executive Clarence Otis turned to a now familiar refrain: It had been a "challenging fiscal year" where growth was "below expectations." An earlier Lenten season and Easter holiday hit sales hard. He forecast that the "economic recovery will continue to be frustratingly slow."
But Otis promised that "over the next 12 months, guests will see more and more of the improved food, service, value and advertising we've been developing." The company plans to open many more restaurants.
Orlando, Fla.-based Darden is the largest player in the full-service restaurant industry, which has been among the economic sectors hardest hit by the recession. Customers are abandoning casual, sit-down eateries, which are cramped by rising commodity costs and struggling to compete with the price point of fast-food and fast-casual restaurants as well as with fine-dining establishments.
While Darden's best-known chains suffered, the company drew strength from its LongHorn Steakhouse brand and its specialty restaurants.
LongHorn's same-store sales went up 3% over the quarter and traffic dropped just half a percent in May. Sales at eateries such as Capital Grille, Bahama Breeze and Seasons 52 were all up.
With that boost, Darden and its nearly 2,000 restaurants enjoyed an overall 10% profit increase from a year ago. Net income reached $151.2 million, or $1.15 a share, up from $137.4 million, or 99 cents, a year earlier. Sales were up 3.8% to $2.07 billion for the quarter ended May 27.