Darden Restaurants Can’t Find the Customers, Either

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.

To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report, The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail. In it, you'll see how these two cash kings are able to consistently outperform, and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 16, 2013, at 8:06 PM, rocky3071 wrote:

    RRMS - so far in it's short history this company seems well positioned among pipeline LP's. If a crystal ball exists out there please advise the future. Until then this looks good.

    On Darden I love Olive Garden fundamentals but think Chipotle wore out its novelty early especially among heavily concentrated Mex food areas. It is too bland too expensive and limited in menu offering. At least provide a good refried bean and find some unique and zippy salsa.

Add your comment.

DocumentId: 2272888, ~/Articles/ArticleHandler.aspx, 4/21/2014 3:07:02 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement