In providing an updated and lowered guidance for for its upcoming quarterly results on Friday, Darden Restaurants (NYSE:DRI) also offered a warning that applies to the entire restaurant sector.
The picture being painted of the restaurant industry’s fortunes in 2013 has become increasingly grim, and Darden’s diminished forecast and a harsh downgrade of Wendy’s (NASDAQ:WEN) just confirms the prognosis. The culprits responsible for putting the clamps on restaurant growth are tough margins and soft customer traffic.
Last week, the consulting firm AlixPartner predicted that budget-conscious diners would be eating out far less often this year. “There’s going to be margin pressure, big time,” Adam Werner, co-leader of AlixPartners’ restaurant practice, told Reuters. As January’s payroll tax hike will cause the 160 million Americans who pay the tax to have less discretionary income — a family earning $50,000 annually will have $1,000 less to spend this year — restaurants will have to increase their advertising budgets and offer special deals to keep afloat in the highly competitive industry. These added costs are expected to significantly affect results, and in fact, they already have.
Darden Restaurants — operator of the Olive Garden, Red Lobster and LongHorn Steakhouse chains — announced that for its fiscal third quarter ending February 24, it expects same-restaurant sales to fall by 4.5 percent year-over-year. As the chain has been struggling to bring in customers, it cautioned that its third-quarter results would likely fall below Wall Street’s expectations…