Darden plans to split from Red Lobster

Orlando SentinelDecember 20, 2013 

Earns Darden Restaurants

People leave an Olive Garden restaurant at sunset in March in Foxborough, Mass. Darden Restaurants Inc. plans to split from Red Lobster. ASSOCIATED PRESS FILE PHOTO


Darden Restaurants Inc. said Thursday it will either spin off or sell Red Lobster, one of its oldest and biggest brands.

The Orlando-based company also said it plans to stop building new Olive Gardens and to slow down growth at LongHorn Steakhouse.

The announcement came as Darden reported weak second-quarter results. Profit plummeted to 15 cents per share -- a 42.3 percent decrease from the previous year. Analysts had expected earnings of about 20 cents per share.

Red Lobster's sales were down more than 4 percent during the second quarter, with guest counts declining 10 percent in October.

The company said it expects earnings per share for next year to drop 15 to 20 percent compared with this year. The company had previously predicted a 3 to 5 percent decline.

Red Lobster, one of Darden's flagship brands, started 45 years ago in Lakeland, Fla. With 705 restaurants in the U.S. and Canada, it is the nation's largest sit-down seafood dining chain. Sales last year were about $2.6 billion.

"While we are highly confident the future is bright for both Red Lobster and Darden excluding Red Lobster, we also recognize that the operating priorities, capital requirements, sales and earnings growth prospects, and volatility profiles of the two parts of the business are increasingly divergent," Chief Executive Officer Clarence Otis said in a statement. "By establishing two independent companies, a separation will better enable the management teams of each company to focus their exclusive attention on their distinct value creation opportunities."

Kim Lopdrup, Darden's president for the specialty restaurant group and new business, will serve as chief executive officer of Red Lobster after the separation.

Darden said it expects any separation transaction to close in early fiscal 2015, which begins May 26.

An activist investor, Barington Capital Group, had been pushing for Darden to break off both Olive Garden and Red Lobster off into separate companies. Many analysts had also agreed Darden has become too big.

Selling Red Lobster will likely help the stock price, Investment Technology Group analyst Steve West said in an email.

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