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Darden Profit Sinks as Restaurant Promos Fall Flat

Red Lobster restaurant in New York City.
Victor J. Blue | Bloomberg | Getty Images
Red Lobster restaurant in New York City.

Darden Restaurants reported quarterly earnings Thursday that were in line with analysts' lowered expectations, as unsuccessful promotions led to a decline in sales at its Olive Garden, Red Lobster, and LongHorn Steakhouse chains.

Shares of the Orlando, Fla.-based restaurant chain operator slipped prior to the opening bell, following the news. (Click here to get real-time quotes for Darden.)

Earnings excluding items fell to $33.6 million, or 26 cents a share, from $53.7 million, or 40 cents a share, in the year-earlier period.

Revenue rose 7 percent to $1.96 billion from $1.83 billion a year ago.

Wall Street had expected Darden to report earnings excluding items of 26 cents a share on $1.95 billion in revenue, according to Thomson Reuters consensus estimates.

Darden said it expects fiscal 2013 earnings of $3.29 to $3.49, compared with analysts' expectations of $3.42 a share.

Incremental gains in the company's specialty restaurants were offset by a 2.7 percent decline in quarterly sales for Olive Garden, Red Lobster, and LongHorn Steakhouse. In the second quarter, U.S. same-restaurant sales fell 0.8 percent for LongHorn Steakhouse, dropped 2.7 percent for Red Lobster, and slid 3.2 percent for Olive Garden.

The company had warned earlier in the month that earnings would fall short of prior forecasts, with Clarence Otis, Darden's chairman and chief executive, saying the company's promotions did not "resonate with financially stretched consumers, as well as newer promotions from competitors."

In a statement, he said: "Our disappointing results for the quarter point to the need for bolder changes in the promotional approach at our three large brands."

The decline in traffic comes despite the company's efforts to revamp the menus and marketing for its flagship chains. At Olive Garden, the company rolled out an updated advertising campaign and introduced more light and affordable dishes. At Red Lobster, it added options for people who don't like seafood.

At its specialty restaurant group of smaller chains, the figure rose 0.7 percent.

In cutting its forecast for the year earlier on Dec. 4, Darden had said that it was hit by a publicity backlash from a move intended to gauge how the company could mitigate an expected rise in costs tied to new health-care regulations. Starting in 2014, big employers such as Darden will be required to provide health insurance to full-time workers. The company had tested hiring more part-time workers and replacing full-time workers who left with part-time workers at some restaurants.

Reuters contributed to this article.

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