Darden (NYSE: DRI) reported what it deemed a record third quarter last night, as its Olive Garden chain gave most reason to be impressed and Red Lobster reported minor improvements. However, the quarter wasn't exciting enough for investors, and the stock sank in this morning's trading.
The company reported earnings of $77.9 million, or $0.46 per share, compared to earnings of $61.8 million, or $0.35 per share, the same quarter a year ago. (Last year's third-quarter earnings were down 3%, though, in what the company considered a disappointing quarter at the time.) Revenues increased 5% to $1.24 billion.
Olive Garden's same-store sales improved by 5.4% for the quarter, but Red Lobster's were down a bit more than 5%. However, Darden said that the declines in traffic at Red Lobster seemed to be stabilizing compared with last quarter. Olive Garden's overall sales were up 9.1%, while Red Lobster's sank 2.8%.
When it comes to expansion, it may be Darden's taken a bet on beef. It now has 64 Smokey Bones barbecue-oriented sports bars, versus 34 last year -- it's an increasing presence with plenty of room for further expansion. In fact, 30 total Smokey Bones openings are expected during fiscal 2004. Given current dietary trends, the Smokey Bones barbecue concept could make a good foil for a flagging seafood chain.
For now though, Red Lobster and Olive Garden are Darden's major chains, and Red Lobster continuing to lag in a popularity contest between the two. However, since September when the company warned of lowered earnings stemming from its all-you-can-eat crab promotion, the stock has climbed 36%. Signs of life in Red Lobster's fortunes have gone a long way with investors. Nonetheless, the chain faces persistent problems.
Flagging customer traffic is a pesky issue for Red Lobster, leading Darden to hire a new advertising company for a spiffed-up campaign. While cost controls helped, there's still a lot of room for improvement at the chain. So, for investors hoping to see Red Lobster start rocking again, the third quarter was a bit disappointing.
Do you think Red Lobster will make a recovery any time soon? Talk to other Fools on the Darden discussion board.
Alyce Lomax does not own shares of Darden.
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