UDATE: Darden: Conditions `Improving`; Sales Sequentially Rising

Date : 12/18/2009 @ 11:18AM
Source : Dow Jones News
Stock : Red Robin Gourmet Burgers, Inc. (RRGB)
Quote : 52.5  -0.8 (-1.50%) @ 6:02PM

UDATE: Darden: Conditions `Improving`; Sales Sequentially Rising

Darden (NYSE:DRI)
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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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