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Darden Restaurants (DRI) Retreats After Guiding Q2 Profit Below Street

 December 04, 2012 09:17 AM

(By Balaseshan) Darden Restaurants Inc. (NYSE: DRI) shares retreated 9% in premarket after the full-service restaurant company guided second quarter earnings below Street, and reduced fiscal 2013 forecast.

"Our second quarter is an especially value sensitive time of year, and this year's promotional offers were largely consistent in nature with what we've promoted successfully in the past," Darden's Chief Executive Clarence Otis said. "These promotions did not resonate with financially stretched consumers as well as newer promotions from competitors."

For the second quarter, the company expects earnings per share (EPS) from continuing operations of about $0.25 to $0.26, while Street analysts predict $0.47.

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The company anticipates the transaction and closing costs associated with the purchase of Yard House USA Inc. to adversely affect EPS for its fiscal second quarter by about 5 cents. Additionally, the company reported that Hurricane Sandy adversely affected EPS by about a penny.

Darden expects combined U.S. same-restaurant sales for the second quarter to be about down 2.7% for Red Lobster, Olive Garden and LongHorn Steakhouse and U.S. same-restaurant sales of up 0.7% for its Specialty Restaurant Group.

The company estimates U.S. same-restaurant sales for the second quarter will be about down 0.8%, down 2.7% and down 3.2% for LongHorn Steakhouse, Red Lobster and Olive Garden, respectively. Darden expects to release final fiscal second quarter results on December 20, before the market opens.

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For the fiscal 2013, the company now projects EPS from continuing operations of $3.29 to $3.49 and total sales growth of 7.5% to 8.5%, while Street analysts predict EPS of $3.88 on revenue growth of 9.30%.

Previously, the company had expected EPS to increase 5% to 9% over last year's EPS of $3.58, and sales growth of 9% to 10%.

Darden predicts combined U.S. same-restaurant sales of about down 1.0% to flat for Red Lobster, Olive Garden and LongHorn Steakhouse, incremental sales starting in fiscal September from the acquisition of Yard House, and the opening of about 100 net new restaurants in fiscal 2013, not including the initial 40 Yard House restaurants operating at the close of the acquisition.

"In light of these upcoming changes, we are being cautious about our sales and earnings forecast for the full year. Our outlook for the year also reflects the potential impact, though difficult to measure, of recent negative media coverage that focused on Darden within the full-service segment and how we might accommodate healthcare reform," said Otis.

DRI closed Monday's regular session at $52.42. The stock has been trading between $41.65 and $57.93 for the past 52 weeks.

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