logo  
Sign in or Register

Already a member?

Sign in

Or sign in with your account on:

Not a member yet?

Register
    

Can Red Lobster Be Saved?

By  +Follow January 10, 2014 12:49PM
Share:
Tickers Mentioned:

Darden Restaurant, Inc.’s (DRI) decision to spin off the Red Lobster seafood chain was announced last month to somewhat mixed reviews. The move is expected to take place sometime later this year. While the restaurant operator of middle-tier establishments was able to separate the least exciting unit in Red Lobster, it also said that the albatross that is Olive Garden will still remain on its balance sheet for the foreseeable future.

So while this is a nice case of addition by subtraction for the main Darden group—which also operates more consumer-enticing brands such as Yardhouse, The Capital Grille, and others—it begs the question of why shareholders would want to participate in turning around the flagging franchise that carries over 700 locations nationwide?

Considering that Darden views Red Lobster as the unit weighing down its overall growth potential, a spin-off to a standalone company would be hard pressed to generate much excitement from investors. This seems much more suitable for a traditional private equity turnaround project than to have a newly created stock languish in the public market.

For the second quarter of 2014, Darden announced that Red Lobster’s same-store sales decreased by 4.6 percent. But, the struggling brand generated an estimated revenue of $2.6 billion in 2013, which accounted for about 30 percent of Darden’s total revenue.

So, for all its faults, Red Lobster is still generating revenue growth (albeit, in the low single digits) and is profitable. So the potential of a successful turnaround could offer promising rewards for patient investors.

Who Will Consider the Lobster?

The team charged with turning around the restaurant chain will includes Kim Lopdrup, who steps back into the Red Lobster CEO role after his 2004 to 2011 stint. He was previously president of Darden’s specialty restaurant group and new business.

Salli Setta remains in her role as Red Lobster’s president, and Brad Richmond steps in as the new CFO.

Turnaround investors know, more than anything, the acumen of a company’s management team is invaluable during periods of a company’s revival. Their vision has to align with those of consumer tastes—see Ron Johnson and failure of JC Penney (JCP) . That task is hard enough already, but when you factor in that Red Lobster is a multi-national operation, it’s that much more daunting.

Then there’s execution. While rock star CEOs are valued for their forward-thinking concepts and charismatic personalities, a good management team needs to ensure that a company trying to lean down is operating at full efficiency.

No Middle Road

Consumer tastes have splintered off a bit over the past several years. During the recession, the middle class was squeezed so hard that the majority of consumers traded down to more cost-effective dining options. High-end consumers, which were less affected, maintained their tastes.

For a company like Red Lobster and Darden Restaurants, the suburban template strategy seemed more like a product of a different time. The advantages of consumer brand recognition no longer carry the same weight as before, especially with new on-demand apps like Yelp (YELP) or Groupon (GRPN) to direct consumers to debatably superior alternatives.

That said, Wall Street loves turnaround potential. What’s more, the appetite for spin-off opportunities seems healthy. Over the last year, the Guggenheim Spin-Off ETF ($CSD) is up over 45 percent. Granted, some spin-offs attract investors because the unit being divested offers higher growth potential than the parent company. In this case, Darden is clearly trying to unload what may be perceived as dead weight as it tries to refocus its business into different demographics. It’s not entirely different from the failed proposed spin-off Netflix offered in 2011 when it suggested separating its DVD-by-mail business into Qwikster.

But retail turnarounds are notoriously tough, but it's not impossible. Gap (GPS) and Starbucks (SBUX) are prime examples of companies that managed to right the ship. Then there are the Sears (SHLD) and Abercrombie & Fitch Co. (ANF) . So it’ll be interesting to see how the Red Lobster recovery effort plays out—though that’s usually true with most turnaround stories in the early going. Will the management team choose to reinvest in quality and rehabilitate its image with consumers, or go the low-cost route and try to price its competitors out of the way? Or will a truly innovative strategy be introduced that warrants the risk investors would be taking on this spinoff at its current

 
 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


Signup for our daily newsletter and get our best articles emailed right to you!

Results for DRI
12Stocks.com
19 Sep 14 16:03:37
MidCap #Stocks Trend $CNQR $DRC $VRTX $N $SLXP $COL $AWAY $DRI $ACT $GWR $NRG $PEG $ALKS $ZTS $ARMK $HUM @ http://t.co/tf79gD96D3
12Stocks.com
19 Sep 14 16:03:03
S&P500 #Stocks Trend $VRTX $COL $EXC $MSFT $DRI $ACT $CCL $NRG $PEG $AMGN $ZTS $GOOGL $VZ $HUM $DPS $WHR $INTU @ http://t.co/RPeaHBZz9y
12Stocks.com
19 Sep 14 16:02:47
S&P500 #Stocks Performance $VRTX $COL $AMZN $EXC $MSFT $DRI $ACT $AES $VLO $CCL $MPC $NRG $PEG $AMGN $NLSN more@ http://t.co/RPeaHBZz9y
MarketClub
19 Sep 14 15:10:36
Today's #MarketMover is Darden Restaurants, Inc. (NYSE:DRI) http://t.co/j6el9IBUEI $DRI #trading #MarketMover #TradeTriangle
ChristmannBeth6
19 Sep 14 14:44:31
null $dri
John Turner
19 Sep 14 14:00:43
$DRI Fast Money Picks For September 16 - Twitter Inc, Darden Restaurants, Inc. And ... http://t.co/awn7i15XpI
12Stocks.com
19 Sep 14 13:01:13
MidCap #Stocks Trend $CNQR $DRC $VRTX $COL $ARMK $ACT $SLXP $DRI $MDVN $ZTS $AWAY $NRG $DPS $INTU $ALKS $ARG @ http://t.co/tf79gD96D3
12Stocks.com
19 Sep 14 13:00:56
MidCap #Stocks Performance $CNQR $DRC $VRTX $N $COL $WTW $AGNC $ARMK $ACT $GLNG $SLXP $NI $DRI $MDVN more@ http://t.co/tf79gD96D3
12Stocks.com
19 Sep 14 13:00:39
S&P500 #Stocks Trend $VRTX $COL $ACT $DRI $CCL $ZTS $NRG $DPS $INTU $EXC $ARG $KO $WHR $MCD $AMGN $EW $HUM @ http://t.co/RPeaHBZz9y
12Stocks.com
19 Sep 14 13:00:23
S&P500 #Stocks Performance $VRTX $COL $ACT $AMZN $NI $DRI $CCL $NLSN $ZTS $NRG $AES $MPC $DPS $CCE $INTU more@ http://t.co/RPeaHBZz9y
Daily Contracts
19 Sep 14 12:41:02
Real-Time feed of company contracts, original agreements and executive updates from Darden $DRI http://t.co/L5y9RjG4KB
Alan Farley
19 Sep 14 11:08:34
Why greedy hedge funds suddenly care so much about breadsticks $DRI http://t.co/jXhXzWIbR7
Lauren Jacobs
19 Sep 14 10:24:39
RT @tnewmstweet: How @OliveGarden's Investors Upset its Employees http://t.co/EGed6Np77T by @KhushAndOJ via @Eater | PETITION: https://t.co…
Flavorful Excursions
19 Sep 14 10:18:43
RT @AnjaliFlukerOBJ: Now Starboard's nominees are 'excited' to run for @Darden_News board seats? This campaigning reminds me of middle scho…
Anjali Fluker
19 Sep 14 10:16:16
Now Starboard's nominees are 'excited' to run for @Darden_News board seats? This campaigning reminds me of middle school elections $DRI
Tim Newman
19 Sep 14 10:08:26
How @OliveGarden's Investors Upset its Employees http://t.co/EGed6Np77T by @KhushAndOJ via @Eater | PETITION: https://t.co/GexQaNioZ3 $DRI
Briefing.com
19 Sep 14 10:03:07
Co’s that have issued #earnings #guidance in the last 30 days http://t.co/pHPKQRSYln $GDOT $PIR $DNKN $IRBT $TEX $AEP $DRI $ULTA
NASDAQ
19 Sep 14 09:55:03
$DRI - Additional Proxy Soliciting Materials - Non-management (definitive) (dfan14a) http://t.co/5qcKpQOnQ2
$Stocknewsalerts
19 Sep 14 09:54:27
$DRI Darden - DFAN14A (Additional Proxy Soliciting Materials - Non-Management (definitive)) SEC Filing From our Stock News Alerts App
Tim Newman
19 Sep 14 09:38:42
RT @nypostbiz: Olive Garden workers have beef with Starboard $dri http://t.co/XZHxkSqYuy via @nypost via @jamescovert1
Coworker.org
19 Sep 14 09:37:37
.@OliveGarden workers have beef with Starboard http://t.co/dgt6PjHABm by @jamescovert1 at @nypost | Petition: https://t.co/bQLs2OvEwV $DRI
NY Post Business
19 Sep 14 09:31:49
Olive Garden workers have beef with Starboard $dri http://t.co/XZHxkSqYuy via @nypost via @jamescovert1
James Covert
19 Sep 14 09:31:48
Olive Garden workers have beef with Starboard $dri #nyp http://t.co/gNWa0OcOVG via @nypost
Marshall Hargrave
19 Sep 14 09:30:23
RT @HedgeyeHWP: Olive Garden employees want a "seat at the table" http://t.co/LSGPB0Iku1 … $DRI <-- rightfully so
Old Dog New Tricks
19 Sep 14 09:26:57
Expect to have 600 x $INTC and 200 x $DRI called. Picked up 300 x $GIS in anticipation assignment.
John Ablemann
19 Sep 14 09:00:41
$DRI Fast Money Picks For September 16 - Twitter Inc, Darden Restaurants, Inc. And ... http://t.co/4sKoKW2obO
12Stocks.com
19 Sep 14 08:53:13
MidCap #Stocks Trend $CNQR $DRC $COL $GLNG $AEO $ATI $WEN $AWAY $DSW $VRTX $MDVN $DRI $SNV $ZION $TFSL $SFM @ http://t.co/tf79gD96D3
12Stocks.com
19 Sep 14 08:52:38
S&P500 #Stocks Trend $COL $CCL $ATI $VRTX $DRI $ZION $APD $PRU $HCBK $MCD $SWK $WHR $NOC $LNC $CAG $HAS $ZTS @ http://t.co/RPeaHBZz9y
12Stocks.com
19 Sep 14 08:52:21
S&P500 #Stocks Performance $COL $CCL $NI $ATI $AMZN $CRM $VRTX $DRI $HD $ZION $APD $LYB $SPLS $PRU $HCBK more@ http://t.co/RPeaHBZz9y
Shit Management Says
19 Sep 14 08:13:09
Developed brands to have industry‐leading average unit volumes, margins and restaurant‐level returns -- $DRI
NASDAQ
19 Sep 14 07:22:09
$DRI - Additional Proxy Soliciting Materials (definitive) (defa14a) http://t.co/pAx4EnA7cz
$Stocknewsalerts
19 Sep 14 07:19:26
$DRI Darden - DEFA14A (Additional Proxy Soliciting Materials (definitive)) SEC Filing From our Stock News Alerts App
Stock Moo
19 Sep 14 06:41:54
$dri: Starboard's Director Nominees Issue Letter to Darden Shareholders http://t.co/w0RKlgbs8p
Fish4Bucks
19 Sep 14 06:26:04
60m $DRI Upper Trendline Pressure 50.710 #futures #stocks 09:25:46 AM http://t.co/WZwETG8am0 Signals based ... http://t.co/WZwETG8am0
NASDAQ
19 Sep 14 06:15:06
$DRI - Starboard's Director Nominees Issue Letter to Darden Shareholders http://t.co/ipc6UD2sqi
Media Sentiment
19 Sep 14 05:48:04
$DRI received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 100
Market Int Center
19 Sep 14 05:45:29
Darden Restaurants $DRI Showing Bullish Technicals With Resistance At $51.02 ( http://t.co/N7TeVkrnxD )
Stock Moo
19 Sep 14 05:41:55
$dri: "Grazie" Olive Garden Guests And Fans For Your Passionate And Ongoing Support http://t.co/cESnSNHCaa
Full Disclosure
19 Sep 14 05:35:47
Could Olive Garden labor conceivably unite with management against an invading hedge fund? http://t.co/Vl0nhA9OrV $DRI
Ritika Goyal
19 Sep 14 05:26:26
$DRI discovers the existence of #TeamBreadsticks, says "Grazie." Is that word authentic Italian or just Italian inspired?
4-traders.com
19 Sep 14 05:10:03
Darden Restaurants : "Grazie" Olive Garden Guests And Fans For Your Passionate And Ongoing Support http://t.co/ZwXbWpnsYy $DRI
NASDAQ
19 Sep 14 05:08:56
$DRI - "Grazie" Olive Garden Guests And Fans For Your Passionate And Ongoing Support http://t.co/oPpx9WcR4N
BV Services
19 Sep 14 05:05:42
$DRI "Grazie" Olive Garden Guests And Fans For Your Passionate And Ongoing Support.. http://t.co/UEsLe3EgHv
$Stocknewsalerts
19 Sep 14 05:05:39
$DRI Darden - "Grazie" Olive Garden Guests And Fans For Your Passionate And Ongoing Support From our Stock News Alerts App
Fish4Bucks
19 Sep 14 04:24:54
60m $DRI Upper Trendline Pressure 50.710 #futures #stocks 07:24:41 AM http://t.co/WZwETG8am0 Signals based ... http://t.co/WZwETG8am0
4-traders.com
19 Sep 14 03:05:05
Darden Restaurants : Mails Letter To Shareholders; Board Recommends Shareholders Vote 'FOR ALL' of 's Eight... http://t.co/y2FooQx5wH $DRI
12Stocks.com
19 Sep 14 03:02:59
Weekly S&P500 #Stocks Trend $X $DD $ICE $CME $ETFC $LRCX $KSU $NUE $SCHW $LUV $DFS $LEN $KSS $DRI $GMCR $SNDK @ http://t.co/RPeaHBZz9y
Stock Signaling
19 Sep 14 03:01:06
Earnings Surprises: $UNFI $FDX $GIS $LEN $PIR $MLHR $CLC $ADBE $DRI $OPTT $AAVL $SPWH $LULU $RSH $ULTA http://t.co/Vtx6dLy0Nw #swingtrading
FlowerPower
18 Sep 14 20:12:54
#MadMoneyEspresso (1 of 2) $BABA —> 👍, don't pay above $83 for IPO $RAD —> 👍 $SHLD—> 👎 $DRI —> 👍 $DBD —> 👍 $PAA —> 👍 $WFC —> 👍
Brandon
18 Sep 14 17:41:33
Wow did Darden $DRI sling some mud back at Starboard. Calls former exec "stale and neither recent nor relevant" http://t.co/9qn6Z7V3BT
				
				
By  +Follow January 10, 2014 12:49PM
Share:

Comments

 

blog comments powered by Disqus

About us

Equities.com is the most advanced interactive online social ecosystem for the financial industry, serving as a resource center and next-generation communication platform that connects self-directed investors with public issuers, market experts, and professional service providers and vendors. Registered members can leverage our exclusive proprietary research tools such as the Small-Cap Stars, which outperformed 90% of all small-cap mutual funds, and robust do-it-yourself E.V.A. research reports. The Equities.com Issuer Dashboard is the ideal tool to communicate and manage investor awareness campaigns to the investment community, as well as to access valuable resources to help your company grow.

Market Data powered by QuoteMedia.
Copyright © QuoteMedia. Data delayed 15 minutes unless otherwise indicated. Terms of Use.