Blaming the payroll tax increase, rising gas prices and severe weather, Darden Restaurants warned investors Friday of a difficult third quarter and reduced its outlook for the year.
The Orlando-based company said it expects sales at established restaurants for its three biggest brands -- Olive Garden, Red Lobster and LongHorn Steakhouse -- to decline 4.5 percent for the quarter that ends Sunday. It expects earnings per share of $1 to $1.02. Analysts had predicted $1.12.
For the fiscal year that ends in May, Darden cut its earnings outlook to between $3.06 and $3.22 per share. In December it had predicted between $3.29 and $3.49 a share.
Darden chief executive officer Clarence Otis sent a memo and video message to employees Friday insisting the company remains "the envy of our competitors."
The company is focused on offering more discounts to lure consumers wary of spending, he said.
"During the early stages of this transition, we know that our efforts won't always deliver the results we hope for, but we are confident our new direction will soon be more consistently successful," Otis told employees in the memo.
The economic climate has made things difficult for restaurants in general, said Steve West, an analyst with Investment Technology Group.
"People are saying, 'I've got 2 percent less in my wallet, gas prices are ripping right now -- where am I going to sacrifice?' " West said, referring to the payroll tax jump that hit in January.
Even so, Darden's stock rose Friday by 3.3 percent, to $46.23, after one analyst upgraded it.
Mark Kalinowski of Janney Capital Markets said Darden's sales drop might have bottomed out, and "we believe a lot of the bad news
about DRI is already in the stock at this point."
Kalinowski said if Darden slashes its capital expenditures significantly, that could signal the company will focus more on running its existing restaurants well. Darden has already said it is looking at cutting a $750 million budget for expansion and remodeling by about 10 percent next year
Analyst Larry Miller of RBC Capital Markets told CNBC on Friday that some investors had expected Darden to announce it would cut its dividend. That didn't happen, and so the stock price benefited as a result, he said.
Christopher O'Cull of KeyBanc Capital Markets maintained a neutral rating, saying in a research note Darden's sales have been affected not only by economic pressures "but also by the lack of a compelling proposition for guests."
The company will hold a two-day session with analysts in Orlando starting Monday. It will report third-quarter earnings March 22.