Darden profit rises ahead of Olive Garden revamp

Associated Press Modified: September 21, 2012 at 5:15 pm •  Published: September 21, 2012

NEW YORK (AP) — Darden Restaurants Inc. on Friday reported a better-than-expected profit for its fiscal first quarter as it prepared to revamp the menus for its struggling Olive Garden and Red Lobster chains.

The company also declared a quarterly dividend, sending shares up more than 5 percent and briefly touching an all-time high.

At Olive Garden, the company's biggest chain, Darden has been trying to boost traffic by focusing on value and adding lighter options to the menu. Drew Madsen, the company's chief operating officer, said the desire for smaller portion sizes is reflected in the growing number of customers who are ordering an appetizer as a meal.

"Generous appetizers can substitute for entrees and small plates — those are opportunities we will address with our menu enhancements," Madsen said, noting that major changes are planned for the year ahead.

The trend of ordering smaller dishes may also reflect customer sensitivity to prices in the tough economic climate. As such, Olive Garden plans to keep price hikes to below 2 percent for the year ahead.

Olive Garden's attention to prices is also being forced by competitors such as Applebee's, which is known for its "2 for $20" deal.

Toward the end of the quarter, however, Olive Garden raised the price of its popular "Never Ending Pasta" promotion for the first time in five years to $9.95, up $1. That was needed to make up for increased costs over that time, the company said.

Although Darden has already started retooling its menu and marketing, traffic at established Olive Garden restaurants declined during the period. The company blamed the dip in part on its "Taste of Tuscany" promotion, which failed to resonate at the start of the quarter. Traffic was also impacted because it does not include customers who order appetizers as entrees. Higher prices offset the decline and sales at restaurants open at least a year edged up 0.3 percent.

The metric is a key indicator of health because it strips out the impact of newly opened and closed locations.

At Red Lobster, the figure fell 2.6 percent as traffic declined. But Darden is hoping to spark a turnaround in the coming months with its biggest menu overhaul in a decade. To broaden the chain's appeal, the menu will include more chicken and beef dishes; about a quarter of the menu will be non-seafood options, compared with just 8 percent now.

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