After the bell yesterday, Darden Restaurants (NYSE:DRI) released its second-quarter results. Chalk up another quarter of same-store sales gains at Olive Garden, offset by declining comps at Red Lobster, right? The pattern has been so predictable you could almost set your watch by it. That was the case last quarter and the quarter before and yes, even the quarter before that. For history buffs, check out Alyce Lomax's comments from this time last year, and you'll understand that this trend has been in place for quite some time.
A funny thing happened this time, however. Darden announced that Red Lobster's October same-store sales actually rose 9%-10%. No, that's not a typo. The gain was the first since February, and even outpaced the 6%-7% improvement reported at Olive Garden. Much of the credit for the unexpected gain goes to an improvement in store traffic, which registered a gain for the first time in 14 months. Then, proving that the month before was not a fluke, Red Lobster reported another rise in November.
The back-to-back gains helped the struggling seafood specialist finally end its slump and post a 3.4% increase in second-quarter same-store sales. Olive Garden, meanwhile, must wonder what all the fuss is about; the Italian-themed chain has delivered 40 consecutive quarters of same-store sales growth. Well, with yesterday's 5.5% increase, make that 41 and counting.
With both chains finally working in tandem, overall sales rose 7.6% to 1.23 billion. Earnings surged 43% to $43 million, or $0.26, from $30.1 million ($0.18) the year before. The results came in three cents ahead of estimates, including the fractional per-share impact of an earnings restatement. In another example of the malleability of corporate earnings, Darden announced that the implementation of a new accounting policy will force the restatement of financial results dating back to 1996.
Management is optimistic about the future, and has bumped up its full-year guidance, with earnings growth now projected at 10%-15% (excluding restructuring charges). Darden appears to have sidestepped the general slowdown that has settled over the casual dining sector.
Applebee's (NASDAQ:APPB) trimmed its outlook not long ago, as same-store sales have been slimming down in recent months. Ditto Ruby Tuesday (NYSE:RI), which scaled back its guidance in October and suffered an 8.6% decline in quarterly comps. Brinker (NYSE:EAT) lowered its annual guidance twice in a four-week span several months ago, shortly before announcing that same-store sales at its flagship Chili's chain fell 0.3% during the first quarter.
Whether Red Lobster's turnaround is sustainable, or simply the short-term result of a popular "endless shrimp" campaign -- a promotion I personally took advantage of on more than one occasion -- remains to be seen. For now though, Darden shareholders are just happy to see the seafood chain moving in the right direction.
And now for dessert:
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Fool Contributor Nathan Slaughter owns none of the companies mentioned.
