Why Darden Restaurants' Shares Were Grilled


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Darden Restaurants (NYS: DRI) , operator of Red Lobster, Olive Garden, and LongHorn Steakhouse, dove as much as 11% after cautioning that its second-quarter earnings forecast wouldn't meet Wall Street's expectations.

So what: Darden received whammies from every angle today. It lowered its fiscal second-quarter EPS outlook to an adjusted $0.25-$0.26 versus Wall Street's projections for a profit of $0.47. Darden noted that same-store sales declines are expected in all three of its big chains as its promotional items simply didn't lure customers into its restaurants as well as its competitors. On top of this, it'll take a $0.01 charge related to Hurricane Sandy and is receiving negative publicity for cutting back worker hours in light of the Affordable Care Act, which is set to take effect in 2014. All in all, I'd call that a bad day at the office.

Now what: No restaurant is safe at the moment. Multinational companies such as McDonald's (NYS: MCD) and Yum! Brands (NYS: YUM) are suffering from negative currency exchange rates and weaker spending in both Europe and even China. Domestically, Chipotle Mexican Grill (NYS: CMG) is dealing with rising food costs and the inability to raise prices on its customers for fear of chasing them to competitors. There really is just no winning right now in the restaurant sector. Until the fiscal cliff picture improves and U.S. GDP begins marching in the right direction, this is a sector I'd slap a huge "avoid" sticker on.

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The article Why Darden Restaurants' Shares Were Grilled originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Darden Restaurants, McDonald's, and Chipotle Mexican Grill. Motley Fool newsletter services have recommended buying shares of McDonald's and Chipotle Mexican Grill, as well as creating a bull call spread in McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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