Darden 3rd-Quarter Net Down 18% on Higher Costs

       By Ben Fox Rubin 

    Darden Restaurants Inc.'s (DRI) fiscal third-quarter profit shrank 18% as weaker same-restaurant sales at its three major chains and higher costs dragged down results, though the smaller specialty restaurant group was a bright spot.

    Darden, whose primary chains include Olive Garden, Red Lobster and LongHorn Steakhouse, last month cut its third-quarter and full-year projections, saying it was feeling the pressure of consumers getting pinched by higher taxes and gas prices.

    The company began stumbling coming out of the recession, when its rivals offered deep discounts to attract attention, while it refrained from similar promotions to avoid hurting profit margins. Darden has said it is confident in its newer plans to promote more affordable dishes, but investors seem wary considering Darden has been touting that mantra for several quarters now.

    Meanwhile, Darden is turning to its specialty restaurant group, which includes higher-end chains such as Capital Grille and Bahama Breeze, to help it expand. Same-restaurant sales at the specialty restaurant segment rose 2.3% in the latest period, just above the company's February forecast of 2% growth.

    By chain, same-restaurant sales fell 4.1% at Olive Garden--the company's biggest chain by revenue--and 6.6% at Red Lobster. LongHorn posted a 1.6% decline.

    Those three chains combined posted a same-restaurant sales decline of 4.6%, compared with Darden's February view of a 4.5% drop, with the company blaming winter weather for some of the decline.

    For the period ended Feb. 24, Darden reported a profit of $134.4 million, or $1.02 a share, down from $164.1 million, or $1.25 a share, a year earlier. Costs related to its acquisition of Yard House USA Inc. hurt the bottom line by about two cents. The company last month had forecast earnings of $1 to $1.02 a share, below estimates at the time.

    Sales rose 4.6% to $2.26 billion, in line with predictions from analysts polled by Thomson Reuters, aided in part by a 61% rise in the specialty restaurant group.

    Total costs and expenses rose 7.4% to $2.09 billion, with food and beverage costs rising 5% and restaurant labor costs increasing 7.9%.

    Shares of Darden, which affirmed its full-year guidance, closed Thursday at $48.96 and were inactive premarket. The stock is up 8.5% over the past three months.

    Write to Ben Fox Rubin at ben.rubin@dowjones.com