UPDATE 2-Darden profits flop as casual diners watch their wallets
Sept 20 (Reuters) - Darden Restaurants Inc reported dismal quarterly results on Friday and said shaky consumer spending would continue to hurt sales at restaurant chains like Olive Garden and Red Lobster.
To prepare for the difficult times ahead, the company said it would cut $50 million in operating costs per year starting in fiscal 2015. It said it would also cut costs by $25 million in the current fiscal year -- a figure that would be offset by about $10 million in upfront implementation costs.
These cuts include the layoffs of 85 support staff, Chief Executive Officer Clarence Otis said during the company's earnings call.
Shares of the company slid 3.5 percent to $47.59.
Darden's net income fell to $70.2 million, or 53 cents per share, in the first quarter ended Aug. 25 from $110.8 million, or 85 cents per share, a year earlier.
Analysts on average were expecting earnings of 70 cents per share, according to Thomson Reuters I/B/E/S.
Darden's weak first-quarter profits coincided with the casual dining industry's lowest quarterly sales in more than three years, Chief Financial Officer Brad Richmond told investors on a conference call.
An uneven economic recovery, higher taxes and intense competition for lower-cost meals have dented demand from the middle-income consumers who frequent Darden's restaurants, which also include the LongHorn Steakhouse chain. The decline of casual dining chains is a further sign that many Americans are still under a lot of economic pressure despite outward signs that unemployment is shrinking and the housing market is recovering.
"It was a surprisingly weak summer, given the macro numbers where we (saw) anemic growth but nevertheless, growth," Otis told analysts and investors during the company's earnings call.
Otis added that consumers would remain cautious about spending and that the company was continuing its efforts to make its prices and promotions more accessible.
Sales at Olive Garden restaurants open at least 16 months fell 4 percent in the quarter. Analysts polled by Consensus Metrix expected a decline of 1.2 percent at the chain, which traditionally has accounted for almost half of Darden's overall revenue.
Combined same-restaurant sales at Olive Garden, Red Lobster and LongHorn Steakhouse fell by 3.3 percent.
Same-restaurant sales at the company's more upscale Specialty Restaurant Group were slightly better: sales grew by 0.5 percent following the acquisition and opening of 46 Yard House restaurants. The group also includes the Seasons 52 chain.
Overall sales rose 6 percent to $2.16 billion from $2.03 billion.
Darden repeated its 2014 outlook of a 3 percent to 5 percent decline in earnings, excluding special items, from $3.13 per share posted in fiscal 2013.
The company also announced the retirement of Chief Operating Officer Drew Madsen at the end of this quarter. Madsen, who has served in his position for nine years, will be replaced by Gene Lee, who is now president of Darden's Specialty Restaurant Group.