Darden Restaurants (NYSE:DRI) booked a 35% decline in its fourth-quarter profit amid swelling costs and weakness at Olive Garden.
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Shares dropped 3.8% to $47.64 in pre-market trading on Friday, as the results missed Wall Street estimates.
Darden has struggled to revitalize the performance of its Olive Garden and Red Lobster restaurant chains. The company unveiled a $2.1 billion deal in May to sell Red Lobster to private equity firm Golden Gate Capital.
The move was met with criticism from activist shareholders Starboard Value and Barington Capital who want Darden to spin off its real estate holdings and split its growing brands from larger chains like Olive Garden. Starboard nominated a full slate of 12 nominees for Darden’s board, saying the Red Lobster deal undervalues the chain.
Orlando-based Darden said a cost-cutting plan announced in December lowered fourth-quarter earnings by 19 cents a share, and Red Lobster’s financial results were classified as discontinued operations.
For the period ended May 25, Darden recorded a profit of $86.5 million, or 65 cents a share, compared to $133.2 million, or $1.01 a share, in the year-ago period. Revenue improved 3.6% to $1.65 billion.
Analysts expected per-share earnings of 94 cents and revenue of $2.33 billion.
Same-restaurant sales fell 3.5% at Olive Garden and 5.6% at Red Lobster. LongHorn Steakhouse posted a 2.4% increase in comparable sales.
Darden’s specialty-restaurant group, which includes higher-end brands like Capital Grille, saw comparable sales jump 2%.
Total expenses were up 7.1% at $1.62 billion. Food and beverage costs climbed 8.5%.