Olive Garden’s Owner Sees Shares Jump After Boosting Forecast

23 Dec 2015 | Author: | No comments yet »

Olive Garden Owner Sees Shares Jump After Boosting Forecast.

Darden Restaurants Inc., the parent company of Olive Garden and LongHorn Steakhouse, rose the most in more than two years after increasing its annual forecast, validating a turnaround plan begun after a board shake-up last year. And it didn’t help that the casual dining category generally faced intensifying competition from the likes of fast-casual chains such as Chipotle, Noodles & Co., and Panera Bread, offering similar price points. Starboard proposed dumping Darden’s entire board of directors, and despite resistance from corporate leaders, investors voted last October to install all 12 of its candidates.

As part of efforts to reinvigorate the restaurant chain, the company announced plans this year to split off about 430 properties and transfer them into a real estate investment trust. Shortly before that, Darden chief executive Clarence Otis announced his resignation as investors questioned his decision to sell off the struggling Red Lobster chain.

Darden reported Friday that Olive Garden saw a 1 percent increase in sales this quarter at restaurants open more than a year–the fifth straight quarter of sales growth. Profit rose 12 percent in the Olive Garden segment, which executives said came thanks to higher total sales as well as cost-cutting measures. (Cheaper seafood prices helped, too, they said.) Darden, which also owns Longhorn Steakhouse and The Capital Grille, bumped up its earnings guidance for the year, believing its flagship brand has momentum for continued improvement. Among the improvements, Olive Garden has been investing in expanding its carryout business, known as “OG to go,” in a bid to better compete with the fast-casual chains for diners who are in a hurry.

Chief executive Gene Lee also gave indications that the company is looking seriously at how to do a bigger delivery business, moving to something more robust than the hodgepodge of services such as Postmates that it currently uses to cart meals in certain local markets. “We believe there is going to some sort of massive change in third-party delivery,” Lee said on a conference call with investors, citing players such as Uber and Google that are dabbling in this space. “There are a lot of people that are playing in that environment today and we’re looking for the partner who we think is going to be a clear winner.” Olive Garden also has had success finding cheap ways to spruce up its restaurants, and in turn, pull down more sales. The chain is now turning over tables about six or seven minutes faster than it was previously, meaning it can cram in more customers. (And more of those diners might be leaving happy if they didn’t have to wait around to pay their tab.) At a time when many retailers have been at least partially attributing lackluster sales to a cautious mindset among consumers, Lee seemed more bullish about diners’ willingness to spend. At Olive Garden, for example, he said some 50 percent of the people who order the $9.99 customizable Cucina Mia pasta are opting to add meat to the dish, which bumps up the price to $12.99.

It tried a different strategy for marketing its annual “Never Ending Pasta Bowl” promotion, in which diners can pay a flat price for all the pasta they can eat.

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