June 20 - Quarterly profits dropped at Red Lobster and Olive Garden parent Darden and the casual dining operators sees tough times continuing. Fred Katayama reports.
The sluggish economy could slow profits at Darden Restaurants next year. The world's largest casual dining chain saw its fourth quarter profit drop 12 percent due to higher food and labor costs and expenses related to an acquisition. And it lowered its outlook for its next fiscal year, seeing earnings growth of just 4 to 6 percent. CEO Clarence Otis said, "Looking ahead, we expect a macroeconomic environment that is similar in fiscal 2014 to what it was in fiscal 2013, with slow and uneven recovery in both the overall economy and our industry." Darden used aggressive promotions to attract customers who were hit by higher taxes and gas prices. It managed to boost same restaurant sales more than 2 percent at its Olive Garden, Red Lobster and Longhorn Steakhouse chains. Growth at its higher end chains like Capital Grille was even faster. Miller Tabak senior analyst Stephen Anderson is still bullish on the stock. He wrote in a note: "We still think the combination of an improving macroeconomic environment - admittedly more optimistic than the flattish environment suggested by fiscal year 14 guidance - and more moderate commodity costs will result in both earnings per share and margin growth in fiscal year 14." Analysts say the stock could face pressure in light of the weak results and outlook, but the company's 10 percent dividend hike could cushion a fall.