NEW YORK - If the free breadsticks and unlimited soup and salad aren’t enough, Olive Garden is hitting the gas on other promotions to get customersthrough its doors.
Darden Restaurants Inc., which has been struggling to hold onto customers in recent years, said deal offers such as a “2 for $25” dinner special helped drive up customer traffic at its flag-ship 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 it’s a short-term fix that only hurts profit margins. But in a call with analysts, Chief Executive Officer Clarence Otis said that increasing customer traffic is a priority for the company, even if it means sacrificing profit margins for a time.
Darden’s struggles to hold onto customers partly reflect the shifting restaurant industry. Casual dining chains were hit hard by the economicdownturn, which made people more careful about eating out. Competitors such as 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 percent.
At the same time, casual dining chains are also contending with changing eating habits. So in addition to highlighting value, Darden is trying to update its menu 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 those menu items are already capturing about 10 percent of orders and it plans to add more such options going forward.
For the quarter, Darden said net income fell 12 percent 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 percent to $2.30 billion, topping the $2.27 billion Wall Street expected.
Comparable sales at its Olive Garden, Red Lobster and LongHorn Steakhouse restaurants rose 2.2 percent, helped by an uptick in customer traffic.
For the year, Darden earned $411.9 million, or $3.13 pershare. Adjusted earnings were $3.22 per share.
Annual revenue increased 7 percent to $8.55 billion.
Darden said it expects fiscal 2014 adjusted earnings per share to be up between 4 percent and 6 percent. Revenue is anticipated to climb 6 percent to 8 percent, 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.
For 2013, Wall Street had expected earnings of $3.19 per share on revenue of $8.52 billion.
The company, based in Orlando, Fla., also raised its quarterly dividend 10 percent, to 55 cents per share.
Shares of Darden fell $1.11, or 2.2 percent, to close Friday at $50.12.
Business, Pages 27 on 06/22/2013