February 22, 2013
Forget the fiscal cliff. The combination of a quick rise in gasoline prices, and the reversal of the payroll tax holiday, is what's been hurting many businesses this quarter. And those tough consumer trends just claimed another victim today.
This time it was Darden Restaurants (NYSE: DRI ) that had to lower expectations for the quarter. Right after Wal-Mart (NYSE: WMT ) rolled back its outlook on sales growth, Darden asked its own version of the megaretailer's now famous question: "Where are the customers?"
Darden saw a big plunge in restaurant traffic and sales over the first few weeks of February. At the same time that a Wal-Mart executive was reportedly complaining about "the worst start to a month I have seen in my 7 years with the company ," Darden suffered a 9.5% drop in sales at its flagship Olive Garden locations. Customer traffic at the restaurant was down a massive 7%. Those sales and traffic drops follow much smaller contractions of less than 1% for the month of January.
Darden cited rising payroll taxes and gasoline prices as the prime culprits for the surprising dip in sales. The company said those trends "put meaningful pressure on the discretionary purchasing power of our guests ." As a result, Darden lowered its sales growth estimate for the year, dropping it to a range of between 6% and 7%. The company had been expecting total sales growth of between 7.5% and 8.5%.
That outlook puts Darden in the same camp as Wal-Mart -- expecting a terrible February sales month to be a temporary bump on the way to broader growth on the year. As the initial shock of lower paychecks wears off, and as gas prices stabilize, both companies fully expect to see their sales trends revert back to normal. Still, this has been a brutal month to be a consumer-facing business that caters to price-sensitive shoppers. The customers are getting much harder to find.