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Can Red Lobster Be Saved?

By  +Follow January 10, 2014 12:49PM
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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

 
 

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Results for DRI
Russell Barbour
19 Apr 15 17:20:35
http://t.co/7iYkyYwNsB <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
Bruce Leeroy
19 Apr 15 16:21:09
Dining Restaurants Daily & Weekly Charts $BJRI $CAKE $DENN $DRI $RRGB $TXRH http://t.co/a8c7P943IN
Yamasuta
19 Apr 15 13:45:00
$DRI - SELL Signal at 64.94 on Apr 17, 15 By YaMasuta, FREE Algorithmic Trading Software http://t.co/LaBa1JZUYz #stock #trading #trade
PennyStock Zone
19 Apr 15 09:35:17
http://t.co/5cLTmA37bb <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
Yamasuta
19 Apr 15 09:10:00
$DRI - SELL Signal at 64.94 on Apr 17, 15 By YaMasuta, FREE Algorithmic Trading Software http://t.co/LaBa1JZUYz #stock #trading #trade
SmallCaps
19 Apr 15 05:39:25
http://t.co/tXZ7ZtYkE1 <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
Capital Market Labs
19 Apr 15 05:02:25
$CMG vs. $BLMN vs. $PNRA vs. $DRI Compared Across 9 Critical Measures http://t.co/nVi9v7UWzY http://t.co/W6V9IMOeqA
Yamasuta
19 Apr 15 04:35:02
$DRI - SELL Signal at 64.94 on Apr 17, 15 By YaMasuta, FREE Algorithmic Trading Software http://t.co/LaBa1JZUYz #stock #trading #trade
Capital Market Labs
19 Apr 15 02:11:51
$CMG vs. $DPZ vs. $DRI Compared Across 9 Critical Measures http://t.co/rdIL8FXF7j http://t.co/PTrjlkjPc6
SmallCaps
19 Apr 15 00:10:16
http://t.co/tXZ7ZtYkE1 <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
Yamasuta
18 Apr 15 23:55:02
$DRI - SELL Signal at 64.94 on Apr 17, 15 By YaMasuta, FREE Algorithmic Trading Software http://t.co/LaBa1JZUYz #stock #trading #trade
Yamasuta
18 Apr 15 19:20:03
$DRI - SELL Signal at 64.94 on Apr 17, 15 By YaMasuta, FREE Algorithmic Trading Software http://t.co/LaBa1JZUYz #stock #trading #trade
Yamasuta
18 Apr 15 14:40:10
$DRI - SELL Signal at 64.94 on Apr 17, 15 By YaMasuta, FREE Algorithmic Trading Software http://t.co/LaBa1JZUYz #stock #trading #trade
SmallCaps
18 Apr 15 12:29:52
http://t.co/tXZ7ZtYkE1 <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
Yamasuta
18 Apr 15 10:05:02
$DRI - SELL Signal at 64.94 on Apr 17, 15 By YaMasuta, FREE Algorithmic Trading Software http://t.co/LaBa1JZUYz #stock #trading #trade
dailystockplays.com
18 Apr 15 08:13:40
$DRI Bullish Pullback http://t.co/tVWA7l971r
Capital Market Labs
18 Apr 15 07:16:34
$CMG vs. $DRI vs. $EAT Compared Across 9 Critical Measures http://t.co/BHKOfWND6r http://t.co/Nix3hoWiky
Capital Market Labs
18 Apr 15 06:56:05
$YUM vs. $QSR vs. $CMG vs. $DRI Compared Across 9 Critical Measures http://t.co/dXguorxoEl http://t.co/VBiQrJmAzm
Yamasuta
18 Apr 15 05:30:02
$DRI - SELL Signal at 64.94 on Apr 17, 15 By YaMasuta, FREE Algorithmic Trading Software http://t.co/LaBa1JZUYz #stock #trading #trade
Yamasuta
18 Apr 15 00:50:02
$DRI - SELL Signal at 64.94 on Apr 17, 15 By YaMasuta, FREE Algorithmic Trading Software http://t.co/LaBa1JZUYz #stock #trading #trade
PennyStock Zone
17 Apr 15 23:08:45
http://t.co/5cLTmAkI2J <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
TradingView
17 Apr 15 22:10:02
$DRI - DRI - https://t.co/3LGBEl4poT
TV_Trading Ideas
17 Apr 15 22:04:52
DRI $DRI http://t.co/WAP71J5Qtc
Yamasuta
17 Apr 15 20:15:02
$DRI - SELL Signal at 64.94 on Apr 17, 15 By YaMasuta, FREE Algorithmic Trading Software http://t.co/LaBa1JZUYz #stock #trading #trade
SmallCaps
17 Apr 15 20:14:33
http://t.co/tXZ7ZtYkE1 <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
Brian Blues
17 Apr 15 18:29:03
RT @carlquintanilla: Olive Garden installing tablet-at-the-table ordering in 800 US restaurants. We have their tech partner on now. @CNBC $…
PennyStock Zone
17 Apr 15 14:25:41
http://t.co/5cLTmAkI2J <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
Brady
17 Apr 15 12:52:34
Bought $DRI today. $65 good r/r & @Wolfmetric mentioned very bullish flow
Techgravity.com
17 Apr 15 09:07:45
$DRI,Lst:CSELL,Qte:65.1,Chg:-1.33,Tgt:50.61
Market Int Center
17 Apr 15 08:53:00
Darden Restaurants $DRI Trading Near $67.77 Resistance Level ( http://t.co/KJTyAUU1fS )
Option Zen
17 Apr 15 08:17:35
$dri. I am out. Hit my loss limit
Option Zen
17 Apr 15 07:39:58
$dri. U r kicking my ass. U make $amd look good and that ain't easy
Option Zen
17 Apr 15 07:38:13
$twtr $gwph $dri. Not sure y the panic. Low oil. Stronger than expected consumer sentiment. Low bond yields. $ will be coming to us markets
WKRB News
17 Apr 15 05:00:10
Darden Restaurants Now Covered by Guggenheim $DRI http://t.co/DZaIK5KtNv
Option Zen
17 Apr 15 03:10:53
$dri. If not green today I will take my beating gracefully and close my position
NASDAQ
17 Apr 15 01:52:05
$DRI - Guggenheim Begins Coverage on Darden Restaurants (DRI) http://t.co/bpIC2qP6Xt
Capital Market Labs
17 Apr 15 00:18:52
$YUM vs. $DRI vs. $CMG vs. $MAR Compared Across 9 Critical Measures Chart: http://t.co/aqyEgdBpm6 #CML
Russell Barbour
16 Apr 15 22:54:27
http://t.co/7iYkyYwNsB <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
Capital Market Labs
16 Apr 15 18:36:38
$CMG vs. $PNRA vs. $DRI Compared Across 9 Critical Measures Chart: http://t.co/PiMHcGYq7G #CML
Capital Market Labs
16 Apr 15 16:39:19
$QSR vs. $DRI vs. $CMG vs. $RCL Compared Across 9 Critical Measures Chart: http://t.co/aYEnyTXVK9
FinSentS SP500
16 Apr 15 15:31:42
$DRI:US Guggenheim Begins Coverage on Darden Restaurants (DRI) #DARDEN RESTAURANTS INC http://t.co/THw4hC1HIQ #SP500
Jordan S. Terry
16 Apr 15 15:22:47
@The_Real_Fly so which stock am I buying, $DIN $EAT $DRI?
Option Zen
16 Apr 15 15:02:22
$dri. Everybody go eat at Olive Garden. Please
Daily Contracts
16 Apr 15 14:25:03
Real-Time feed of company contracts, original agreements and executive updates from $DRI http://t.co/J3FgaY6fG0
Capital Market Labs
16 Apr 15 14:17:47
$CMG vs. $DRI vs. $BLMN vs. $EAT Compared Across 9 Critical Measures Chart: http://t.co/spg71NOWiY #CML
SmallCaps
16 Apr 15 12:51:56
http://t.co/tXZ7ZtYkE1 <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
Michael P Fenwicks
16 Apr 15 12:26:15
RT @SeekingAlpha: Darden Could Teach McDonald's Something http://t.co/0CsPBWrp0t $DRI $MCD
Joe Bell, CMT
16 Apr 15 12:01:30
I'll be on @FoxBusiness TV today @ 4pm EST @FBNATB,talking stock market & sectors $SPX $ITB $XRT $LEN $MAS $DRI $MNST $AXP $SLB
Option Zen
16 Apr 15 11:59:02
$ntap. Made a nice profit. $gwph. Made a lot and still holding some. $twtr woooohooo. $dri wtf over?
Media Sentiment
16 Apr 15 10:21:56
$DRI received a new alert. Find out why at http://t.co/nZwqReM0tj #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 327
				
				
By  +Follow January 10, 2014 12:49PM
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