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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
Harry Walkman
30 Mar 15 09:32:20
$DRI Darden Restaurants, Inc. -- Was Selling Red Lobster the Right Move All Along? http://t.co/SzjKjLuygZ
Marsha Bonner
30 Mar 15 09:14:42
RT @SaruJayaraman: For Darden, real estate & 'unlocking shareholder value' trump investigating slave labor: http://t.co/d9VyVMo7gP $DRI htt…
Vxepico
30 Mar 15 08:32:43
RT @esimong: Here’s what CEOs were saying about the economy this week http://t.co/UtuDIcNqOp by @Skrisiloff @YahooFinance $KBH $DRI $SCS $H…
Eugenio Simón
30 Mar 15 08:31:59
Here’s what CEOs were saying about the economy this week http://t.co/UtuDIcNqOp by @Skrisiloff @YahooFinance $KBH $DRI $SCS $HDS $NBG $V $MA
Jordan Budd
30 Mar 15 08:12:34
RT @rocunited: For Darden, real estate & 'unlocking shareholder value' trump investigating slave labor: http://t.co/nzvQ7DNoGR $DRI http://…
ROC United
30 Mar 15 08:11:01
For Darden, real estate & 'unlocking shareholder value' trump investigating slave labor: http://t.co/nzvQ7DNoGR $DRI http://t.co/6ceio3dfN9
Saru Jayaraman
30 Mar 15 08:11:01
For Darden, real estate & 'unlocking shareholder value' trump investigating slave labor: http://t.co/d9VyVMo7gP $DRI http://t.co/LLWJpq2W0O
maria myotte
30 Mar 15 08:11:01
For Darden, real estate & 'unlocking shareholder value' trump investigating slave labor: http://t.co/4zFosMEcmy $DRI http://t.co/4xTPyP9Ogp
Derald Muniz
30 Mar 15 07:34:53
Darden april Option chain: $DRI http://t.co/bUAg7g1Hcj
Thomas Collins
30 Mar 15 07:05:20
$DRI Darden Restaurants: Can DRI Keep the Olive Garden Turnaround Going? http://t.co/CBWZLDDVC1
Breaking News
30 Mar 15 06:35:02
$IRG $DRI: Ignite Restaurant Group (NASDAQ:IRG) Finds Itself in the Same ...: http://t.co/ePzh1uvUvM
Large Void Alerts
30 Mar 15 06:32:05
@largevoid 09:32 $DRI HOD from $69.27
Harry Walkman
30 Mar 15 05:03:24
$DRI Darden Restaurants, Inc. -- Was Selling Red Lobster the Right Move All Along? http://t.co/RoEuOWiLL0
J.P. Shepard
30 Mar 15 03:55:21
Darden Restaurants Stock Rating Upgraded by Zacks $DRI http://t.co/WoxTWVhMfn via @RatingsNetwork
Anthony
30 Mar 15 03:15:14
RT @Benzinga: 4 Stock Charts That Oppenheimer Likes $DHI $DRI $LEN http://t.co/3XAVepIgTC
12Stocks.com
30 Mar 15 03:02:29
Weekly S&P500 #Stocks Performance $KRFT $ALTR $RHT $MKC $HRS $CAG $RRC $NE $TIF $DRI $AVP $CHK $NFX $GIS more@ http://t.co/RPeaHBZz9y
Anthony
30 Mar 15 03:01:54
RT @OptionsHawk: $DRI - Darden continues to see far OTM call buying, makes me wonder ex-Red Lobster if someone would buy them out
Penny Stock Secret
30 Mar 15 01:50:29
This Guy Is Making Millions! Watch This Video Proof Here At http://t.co/NovWYe2RAx .. $DRE-L $DRH $DRI
Russell Barbour
29 Mar 15 16:39:12
http://t.co/7iYkyYwNsB <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
Lio Trep
29 Mar 15 16:01:11
Oppenheimer analysts' top stocks: $WFM, $LOW, $DRI, $LULU, $CAPL, $VLO, $NFX, $HAL, $CIT, $DFS http://t.co/mWIA4pwUAV
Superrfly
29 Mar 15 13:16:44
RT @OptionsHawk: $DRI - Darden continues to see far OTM call buying, makes me wonder ex-Red Lobster if someone would buy them out
Sam
29 Mar 15 13:00:57
RT @OptionsHawk: $DRI - Darden continues to see far OTM call buying, makes me wonder ex-Red Lobster if someone would buy them out
Garage Traders
29 Mar 15 12:40:15
RT @OptionsHawk: $DRI - Darden continues to see far OTM call buying, makes me wonder ex-Red Lobster if someone would buy them out
Joe Kunkle
29 Mar 15 12:36:34
$DRI - Darden continues to see far OTM call buying, makes me wonder ex-Red Lobster if someone would buy them out
NASDAQ
29 Mar 15 12:31:05
$DRI - 2 Restaurant Stocks to Buy, 1 to Avoid http://t.co/rSNoPKwwC6
Russell Barbour
29 Mar 15 08:20:46
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Quantpost Industrial
29 Mar 15 07:47:29
$DHI News: "4 Stock Charts That Oppenheimer Likes $DHI $DRI $LEN" http://t.co/wheoJB0YQp Quote: https://t.co/99sp9Wj56a
Benzinga.com
29 Mar 15 07:47:29
4 Stock Charts That Oppenheimer Likes $DHI $DRI $LEN http://t.co/3XAVepIgTC
Breaking News Now
29 Mar 15 05:20:02
$DRI: Darden Restaurants Raised to Strong-Buy at Zacks (DRI): http://t.co/QTbI3EvUqK
Russell Barbour
28 Mar 15 20:15:40
http://t.co/7iYkyYwNsB <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
Craig Garbers
28 Mar 15 17:54:34
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Chart Lab Pro
28 Mar 15 17:46:09
Strongest 20 S&P $ABC, $ACT, $AET, $AOS, $BSX, $CI, $CLX, $COl, $COST, $CTSH, $DGX, $DLTR, $UNH, $SBUX, $MNST, $DRI http://t.co/qbP9UHGTkc
Yolanda
28 Mar 15 12:49:00
RT @rocunited: Top Seafood Supplier for Olive Garden Parent Co Connected to Slave Labor http://t.co/aQzWlYdmdp $DRI #dignityatdarden http:/…
Breaking News Now
28 Mar 15 10:00:04
$DRI: Insider Selling: Darden Restaurants SVP Sells $1268025.72 in ...: http://t.co/qkE5jaQ6Hr
StockNewsWires
28 Mar 15 09:45:02
$DRI: Darden Restaurants CFO Sells $4659682.47 in Stock (DRI): http://t.co/9UOO6Rdvzk
Russell Barbour
28 Mar 15 09:25:09
http://t.co/7iYkyYwNsB <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
The Legacy News
28 Mar 15 06:27:20
Zacks Upgrades Darden Restaurants to Strong-Buy $DRI http://t.co/F51Uf05iiH
Jason Levi
28 Mar 15 05:50:09
RT @rocunited: Top Seafood Supplier for Olive Garden Parent Co Connected to Slave Labor http://t.co/QIc1NS8eiZ $DRI @dignityatdarden http:/…
NASDAQ
28 Mar 15 05:06:33
$DRI - Here's Why Darden Restaurants Is Succeeding and Ignite Restaurant Group is Failing http://t.co/DR2kTklraK
Breaking News
28 Mar 15 05:05:04
$DRI $IRG: Here's Why Darden Restaurants Is Succeeding and Ignite ...: http://t.co/zDgHsi9Yp5
12Stocks.com
28 Mar 15 04:10:56
Weekly S&P500 #Stocks Performance $KRFT $ALTR $RHT $MKC $HRS $CAG $RRC $NE $TIF $DRI $AVP $CHK $NFX $GIS more@ http://t.co/RPeaHBZz9y
Russell Barbour
28 Mar 15 03:09:21
http://t.co/7iYkyYwNsB <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
Anjali Fluker
27 Mar 15 17:01:34
For this week's reporter page story, I dig deeper into what @darden CEO Gene Lee is prioritizing for the firm http://t.co/0bnrD4F5gf $DRI
maria myotte
27 Mar 15 16:32:25
RT @rocunited: AP Reveals Olive Garden Parent Co Sourced Tons of Seafood Possibly Connected to Slavery: http://t.co/fSzbJPX3zd $DRI http://…
US Banking News
27 Mar 15 16:28:00
Darden Restaurants Stock Rating Upgraded by Zacks $DRI http://t.co/hNBR2Yvomw
Ticker Report
27 Mar 15 16:26:26
Darden Restaurants Stock Rating Upgraded by Zacks $DRI http://t.co/rOfEmnREj6
Tim Newman
27 Mar 15 16:21:17
RT @rocunited: Top Seafood Supplier for Olive Garden Parent Co Connected to Slave Labor http://t.co/QIc1NS8eiZ $DRI @dignityatdarden http:/…
ROC United
27 Mar 15 16:20:24
Top Seafood Supplier for Olive Garden Parent Co Connected to Slave Labor http://t.co/QIc1NS8eiZ $DRI @dignityatdarden http://t.co/Jpi1cnPzHg
Lauren Jacobs
27 Mar 15 16:20:14
RT @rocunited: AP Reveals Olive Garden Parent Co Sourced Tons of Seafood Possibly Connected to Slavery: http://t.co/fSzbJPX3zd $DRI http://…
Russell Barbour
27 Mar 15 16:05:32
http://t.co/7iYkyYwNsB <-- Don't blindly copy Tim Sykes or SuperTrades! $OIL $VMW $USD $TWM $ANIP $DRI $SCO #stocks $FB
				
				
By  +Follow January 10, 2014 12:49PM
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