Darden Restaurants shares are plunging and in need of serious promotional changes. But a lawsuit still looms over the multiple chains restaurants.
According to Nasdaq, the shares are plunging more than nine percent on Tuesday after Darden provided earnings guidance for the second quarter, which is well below analysts expectations.
"Our disappointing results for the quarter point to the need for bolder changes in the promotional approach at our three large brands. So, we are retooling the promotional calendars at Red Lobster, Olive Garden and LongHorn Steakhouse for the balance of the year to ensure they better fit consumers' current financial realities and expectations," Chairman and CEO Clarence Otis said in a statement.
"Our second quarter is an especially value sensitive time of year, and this year's promotional offers were largely consistent in nature with what we've promoted successfully in the past," Otis said. "These promotions did not resonate with financially stretched consumers as well as newer promotions from competitors."
Darden now expects net earnings for the second quarter in a range of $0.26 to $0.27 per share.
"On average, 26 analysts polled by Thomson Reuters expect the company to report earnings of $0.47 per share for the second quarter. Analysts' estimates typically exclude special items," Nasdaq reported. "The company expects a negative impact of $0.05 per share due to the transaction and closing costs associated with the purchase of Yard House, USA Inc. in August. It also anticipates $0.01 per share negative impact due to Hurricane Sandy. Combined U.S. same-restaurant sales from Red Lobster, Olive Garden and LongHorn Steakhouse for the second quarter is anticipated to decrease about 2.7 percent from the prior-year quarter."
For fiscal 2013, Darden expects net earnings in a range of $3.29 to $3.49 per share, which is a decrease from the previous prediction of 5 to 9 percent growth, which implied earnings between $3.76 and $3.90 per share.
While the company is down in shares, it might lose more money in a pending lawsuit.
According to Reuters, more plaintiffs were added to the Darden Restaurants lawsuit over wages.
The suit alleging Darden violated U.S. labor laws by underpaying servings at Olive Garden and Red Lobster chains and other eateries now include more than 50 plaintiffs.
The suit was filed in September in federal court in Miami. He plaintiffs are accusing Darden of failing to pay federally mandated minimum wages and forcing its servers to work "off-the-clock" before or after their shifts. It also claims that servers didn't receive the appropriate overtime wages for work in excess of 40 hours per week.
"Since we filed the lawsuit, we've had a tidal wave of inquiries from across the country," said David Lichter of Higer Lichter and Givner.
In September, a Darden company official called the accusations "baseless" and said they "fly in the face of our values and how we operate our business."
