Darden Restaurants shares fall on consumer concern

http://www.reuters.com/article/idUSN2412680420100624n

LOS ANGELES, June 24 (Reuters) - Shares in Olive Garden and Red Lobster parent Darden Restaurants Inc (DRI.N) fell 4.1 percent on Thursday after the company issued a full-year earnings forecast that assumes sales at its major chains will grow and that was above analyst views.

Earlier this year, casual dining chains appeared to be recovering from a multi-year sales slump, but stubbornly high U.S. unemployment, a weak housing market and worries that Europe's debt crisis could usher in a double-dip recession have some consumers pulling back on meals away from home.

Share in Darden fell $1.70 to $40.20 in midday trading on the New York Stock Exchange, while the Dow Jones U.S. Restaurant and Bars index .DJUSRU was off 3.7 percent.

Elsewhere, shares in Chili's Grill & Bar parent and Darden rival Brinker International Inc (EAT.N) shed 3.3 percent.

Darden on Wednesday reported quarterly profit that fell shy of Street estimates, in part because of a charge related to higher-than-expected gift card redemptions, and issued a fiscal 2011 profit forecast slightly above analysts' target.

Its growth forecast for the year ending May 2011 translated into earnings of $3.26 to $3.35 per share on a 2 percent to 3 percent gain in sales at its established Olive Garden, Red Lobster and LongHorn Steakhouse restaurants.

"As we look ahead to 2011, we do expect operating conditions to improve and that's going to be a continuation of the improvement we think that we saw throughout this fiscal year," Darden Chief Executive Clarence Otis said in a conference call on Thursday.

Darden's same-restaurant sales fell short of company targets in the fourth quarter and for all of fiscal 2010, said Jefferies & Co analyst Jeff Farmer.

Farmer expects Darden's 2011 same-store sales to grow 1.5 percent. The guidance was "a show me story in the current environment," he wrote in a note to clients.

While sales remain volatile, Darden executives said the industry's rampant discounting appears to be easing. Darden, which also owns the Capital Grille steakhouse chain and is among the top-performing restaurant operators, has offered special pricing for some meals, but has refrained from the deep discounts and giveaways seen at some rival chains.

Still, some recent results suggest that it will be difficult to wean customers off deals.

California Pizza Kitchen Inc (CPKI.O) on Monday cut its second-quarter profit forecast after the absence of a popular promotion contributed to weaker-than-expected sales. [ID:nN21231561]

On other fronts, Darden said that while it does source some seafood from the Gulf of Mexico -- the site of an environmentally devastating BP (BP.L) oil spill [ID:nLDE65N02E] -- it gets the "large majority" of its seafood from other parts of the globe and has so far seen "very little impact on costs and availability".

Thus far, Darden said, only oysters have been affected. (Reporting by Lisa Baertlein. Editing by Robert MacMillan)