Darden Restaurants Inc. (DRI) Earnings, Dragged By Red Lobster, Misses Street Estimates


As part of a discussion on the recent earnings release of Darden Restaurants Inc. (NYSE:DRI), for the 4th Quarter and fiscal year ended May 25, 2014, Carl Quintanilla, co-anchor of the show “Squawk on the Street” on CNBC, highlighted the fact that Darden has underperformed the S&P by 15 points.

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The earnings release for Darden Restaurants Inc. (NYSE:DRI) on June 20, reported sales of $2.32 billion for the fourth quarter of which included the discontinued operations of ‘Red Lobster.’ The earnings of $0.65 per share are below the expectations of The Street and the last year result of $1.01, even though it was little above the $2.3 billion sales for the same quarter in 2013.

At the same time, Darden Restaurants Inc. (NYSE:DRI)’s stores under the name LongHorn Steakhouse showed an increase of 2.4% in same store sales and 10% rise in revenue for the quarter. Moreover, the Specialty Restaurants group which included Bahama Breeze, Capital Grille, Yard House, etc. posted an increase in revenue of 15.9% on the quarter.

The underperformance of Darden Restaurants Inc. (NYSE:DRI) was mainly due to the declining performance of Red Lobster and Olive Garden, as both the outlets are owned by Darden. While Red Lobster is in the process of being separated from the company’s operations, revenue from Olive Garden forms a major part of the sales of Darden and is estimated to account for 60% of the revenue, after the divestment of Red Lobster.

Commenting on the above situation, CNBC’s Jim Cramer, who is also a co-anchor on the show said: “I think that these places are tired.”

Meanwhile, Quintanilla mentioned a recent news on the Wall Street Journal that cited a statement given by Darden Restaurants Inc. (NYSE:DRI)’s competitor Cracker Barrel Old Country Store Inc. (NASDAQ:CBRL), stating that since 2006, the number of casual eateries in the U.S. had grown by 9%, while, at the same time, the store traffic in these eateries has fallen by 9%.

Cramer noted the fact that there is a constant increase in the menu prices of Darden as the company cited increasing costs. Cramer added that Darden food costs are up by 85% year on year.

Jeffrey Smith‘s hedge fund Starboard Value Lp has 20.13% of its equity portfolio invested in Darden Restaurants Inc. (NYSE:DRI), holding 7.25 million shares. Millennium Management, led by Israel Englander has trimmed its stake in Darden by 32% to 905,740 shares during the first quarter of 2014.

Disclosure: none