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Darden Restaurants, Inc. : Darden Net Down 37% on Weak Same-Restaurant Sales

12/20/2012 | 08:56am US/Eastern

Darden Restaurants Inc.'s (DRI) fiscal second-quarter profit fell 37% as same-restaurant sales at all three of the restaurant operator's major chains sank, led by Olive Garden's decline.

Darden, whose primary chains include Olive Garden, Red Lobster and LongHorn Steakhouse, earlier this month lowered its sales growth expectations for the year due to worse-than-expected second-quarter results.

The company began stumbling coming out of the recession, when its rivals offered deep discounts to attract attention, while it refrained from similar promotions to avoid hurting profit margins. In late 2010, Darden said it would shift its strategy--focusing more on low prices rather than the quality of its food in advertisements. But two years later, Darden is still struggling to find the right balance.

Meanwhile, Darden is turning to its specialty-restaurant group, which includes higher-end chains such as Capital Grille and Bahama Breeze, to help it expand. The company built up that business in August with its $585 million purchase of Yard House USA Inc., a pub-style chain with about 40 locations.

For the period ended Nov. 25, Darden reported a profit of $33.6 million, or 26 cents a share, down from $53.7 million, or 40 cents a share, a year earlier. Acquisition-related costs for Yard House hurt the bottom-line by about five cents. The company earlier this month had forecast 25 cents to 26 cents a share.

Sales rose 7% to $1.96 billion, just above predictions of $1.95 billion from analysts polled by Thomson Reuters.

By chain, same-restaurant sales fell 3.2% at Olive Garden--the company's biggest chain by revenue. At Red Lobster, same-restaurant sales were down 2.7%. LongHorn posted 0.8% lower same-restaurant sales.

Those three chains combined posted a same-restaurant sales decline of 2.7%.

Same-restaurant sales at the specialty restaurant segment grew 0.7%.

Shares of Darden, which affirmed its full-year guidance, closed Wednesday at $46.81 and were inactive premarket. The stock is up 2.7% this year.

Write to Ben Fox Rubin at ben.rubin@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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