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TheStreet Open House

Restaurant Recovery: Not This Year, Not Next

Stocks in this article: DRI




By Christina Cheddar Berk, News Editor at CNBC.com

NEW YORK ( CNBC) -- Darden Restaurants (DRI) cut its fiscal 2012 earnings and sales forecast Tuesday, hurt as deep discounts at its Olive Garden chain failed to bring in new guests.

But Darden, which also operates Red Lobster and LongHorn Steakhouse, isn't the only restaurant suffering these days.

It's been a rough year all around for restaurant operators, with consumers eating out less often. Market researcher NPD Group said Tuesday it doesn't expects 2012 will be much better.

NPD issued its forecast for next year and said it expects the number of diners going to restaurants to be flat in the first half of 2012, but to end the year with visits up by 1%.

That's pretty much the opposite of what happened in 2011. This year, the industry started off hopeful after ending 2010 with two consecutive quarters of 1% traffic increases, but the vision did not materialize.

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The first blow came from high food costs and gasoline prices, which drove up restaurant costs and drained consumer pocketbooks. Restaurant traffic struggled to stay positive, and posted a 0.2% gain in the quarter ending March, according to NPD.

Then, in the second and third quarters, restaurant traffic fell 0.4% during each period, according to NPD's CREST service, which continually tracks consumer use of U.S. restaurants.

NPD, which expects industry traffic will be flat for the rest of this year, blames the trend on high unemployment and low consumer confidence.

"Consumers held tight to their food service dollars this year. Even the deals that helped drive traffic over the past few years weren't as effective this year," said Bonnie Riggs, NPD restaurant industry analyst, in a press release.

Digging into the numbers a little deeper, it seems that quick-service and fast-food restaurants, which represent 78% of the industry's visits, helped buoy up the overall results with a 1% gain in the first quarter and flat traffic in the second and third quarters. Meanwhile, visits to midscale/family restaurants and casual dining restaurants declined in all three quarters.

One bright spot for restaurant operators, however, has been the check. Despite the weak traffic, consumer spending at restaurants was up 1.3% in the third quarter, 2% in the second quarter, and 1% in the first quarter, while the average per-person check rose 1% in the first quarter, and 2% in each of the last two quarters.

-- Written by Christina Cheddar Berk, News Editor at CNBC.com

CNBC is a world leader in business news, providing real-time financial market coverage and business information.

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