Darden Sees Lower Traffic as Consumers Pinched by Economy

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

Eatery operator Darden Restaurants became the latest company Friday to warn that its earnings and restaurant traffic will be hurt by economic headwinds, including rising gas prices and higher payroll taxes, which are putting "meaningful pressure" on consumer spending.

In a statement, the company said that fiscal third-quarter earnings would be in a range of $1 to $1.02. Additionally, the owner of the Olive Garden, Red Lobster and LongHorn Steakhouse chains said traffic at all three establishments would be 4.5 percent lower, due to severe winter weather that buried swaths of the country this year.

Third-quarter same-restaurant sales at LongHorn would be down 1.5 percent, while LongHorn would suffer a four-percent drop and Red Lobster is expected to slump by 7 percent, Darden said.

"Our priority is reestablishing same-restaurant traffic momentum at our three largest brands," said Clarence Otis, Darden's chairman and CEO.

"And while results midway through the third quarter were encouraging, there were difficult macro-economic headwinds during the last month of the quarter," he added. "Two of the most prominent were increased payroll taxes and rising gasoline prices, which together put meaningful pressure on the discretionary purchasing power of our guests."

The company said it expects total sales growth for the year to fall between six and seven percent, reflecting the combined sales from all three of its major chains.

Still, Darden said that sales for Red Lobster, Olive Garden and LongHorn are expected to be between 1.5 and 2.5 percent lower beginning in September, due to the purchase of Yard House and the construction of about 105 new restaurants during 2013.

The restaurant chain "expects diluted net earnings per share from continuing operations for fiscal 2013 to be between $3.06 to $3.22, which includes approximately nine cents of transaction and closing costs associated with the purchase of Yard House."