Darden's fiscal fourth-quarter net income fell 12 percent on rising costs and expenses, the restaurant operator said Friday.
Comparable sales at its Olive Garden, Red Lobster and LongHorn Steakhouse restaurants rose 2.2 percent, however, thanks to improving traffic.
That sent shares higher in premarket trading, even though the company fell short of Wall Street profit expectations.
Darden has ramped up its efforts to get more people through the door after struggling with customer traffic for several years, and that is starting to pay off. Revenue edged out most analyst projections, according to poll by FactSet.
Darden ditched its long-running marketing campaign for Olive Garden that was intended to evoke old world charm. Olive Garden restaurants are now shown as livelier and more modern spots. The company also added dishes that are less calorically intense to its menu.
The company added more non-seafood items at Red Lobster in hopes of eliminating the possibility that a family or group of friends wouldn't go to the restaurant just because one person didn't like seafood. It also began testing a lunch service where diners pay at the counter rather than having a wait person take their order at a table.
The changes were put into place after Darden saw customer traffic begin to fall in the final fiscal quarter of 2012, then carry over into the first two quarters of this year, said Chairman and CEO Clarence Otis
"Growing same-restaurant traffic is our top priority," said Otis. "So, with same-restaurant traffic growth this quarter that was well above industry average, we had an encouraging end to a difficult year."
For the period ended May 26, Darden Restaurants Inc. earned $133.2 million, or $1.01 per share. That compares with $151.2 million, or $1.15 per share, a year ago.
Total costs and expenses increased to $2.14 billion from $1.86 billion.
Removing costs and purchase accounting adjustments tied to its acquisition of Yard House USA Inc., earnings were $1.02 per share, two cents shy of Wall Street estimates.
Revenue climbed 11 percent to $2.3 billion from $2.07 billion. Analysts polled by FactSet were looking for $2.27 billion in revenue.
Sales at LongHorn Steakhouse restaurants open at least a year rose 3.5 percent in the quarter and were up 3.2 percent at Red Lobster locations. At Olive Garden, the figure increased 1.1 percent.
Sales at The Capital Grille locations open at least a year rose 4.5 percent. The metric climbed 4.3 percent at Eddie V's and 1 percent at Seasons 52. These restaurants are part of Darden's specialty restaurant group which reported a 65 percent jump in fourth-quarter revenue, helped by new restaurant openings and the Yard House acquisition.
For the year, Darden earned $411.9 million or $3.13 per share. In the previous year, the Orlando, Fla. company earned $475.5 million, or $3.57 per share.
Adjusted earnings were $3.22 per share.
Annual revenue increased 7 percent to $8.55 billion from $8 billion.
Darden said that it expects fiscal 2014 adjusted earnings per share to be up between 4 percent and 6 percent. Revenue is anticipated to climb 6 percent to 8 percent, including an additional quarter of sales from Yard House. Based on fiscal 2013's adjusted earnings of $3.22 per share and $8.55 billion in revenue, this implies earnings of $3.35 to $3.41 per share on revenue of $9.06 billion to $9.23 billion.
Wall Street had been looking for earnings of $3.19 per share on revenue of $8.52 billion, and shares rose 77 cents to $52 before the opening bell.
The company also raised its quarterly dividend 10 percent, to 55 cents per share from 50 cents per share. The dividend will be paid on Aug. 1 to shareholders of record on July 10.
Darden, which owns and runs more than 2,100 restaurants, will hold its annual shareholders meeting on Sept. 18.
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