Sign in or Register

Already a member?

Sign in

Or sign in with your account on:

Not a member yet?


Can Red Lobster Be Saved?

By  +Follow January 10, 2014 12:49PM
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
23 Oct 14 12:10:07
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/bfER2c3kSa
23 Oct 14 12:07:17
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/sRDdxv8FYs
23 Oct 14 12:07:15
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/mkEFECZtAe
23 Oct 14 12:07:14
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/JQLbp5zI98
23 Oct 14 12:07:13
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/tpdhuHE1Ni
23 Oct 14 12:07:11
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/CR9dCsGL7p
23 Oct 14 12:07:10
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/iK0oRUot4V
23 Oct 14 12:07:09
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/xvGtUvDA8p
23 Oct 14 12:04:08
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/SuvXHFlSD2
23 Oct 14 12:04:07
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/7vhbivthRj
23 Oct 14 12:04:05
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/Lpps1tDdFd
23 Oct 14 12:04:04
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/wFJbvH6hiK
23 Oct 14 12:04:03
$DRI - Initial Statement of Beneficial Ownership (3) http://t.co/aAYcFsg3b7
23 Oct 14 12:01:34
$DRI Darden - 3 (Initial Statement of Beneficial Ownership) SEC Filing From our Stock News Alerts App
Mike Rogers
23 Oct 14 12:00:06
All aboard the $DRI train #JeffSmith
23 Oct 14 11:46:53
Jeff Smith Bullish On Yahoo, Darden, MeadWestvaco http://t.co/ckMZO1mmLe $DRI $YHOO $BABA $MWV
23 Oct 14 11:46:41
60m $DRI Upper Trendline Pressure 50.570 #futures #stocks 02:46:26 PM http://t.co/WZwETG8am0 Signals based ... http://t.co/WZwETG8am0
Market Int Center
23 Oct 14 10:23:12
Potential Darden Restaurants $DRI Trade Has 4.64% Downside Protection ( http://t.co/Zu3Z6PcAzg )
23 Oct 14 09:34:46
DRI 50.29 Stock Charts $DRI Darden Restaurants Inc. (NYSE) Last Updated: 10/23/2014 11:34:45 DRI Stock Chart - http://t.co/ntDkOchlNh
23 Oct 14 06:32:50
60m $DRI Upper Trendline Pressure 50.000 #futures #stocks 09:31:33 AM http://t.co/WZwETG8am0 Signals based ... http://t.co/WZwETG8am0
Cristobal Barberis
23 Oct 14 06:24:51
Most Consecutive Up Days Stocks #MeanReversion $MCRS {10}, $BBY {7}, $BC {7}, $CLVS {7}, $DRI {7} #brberisReport
David Tuzzolino
23 Oct 14 06:06:44
I think $DRI got their money's worth in free pub with the Never Ending Pasta Pass. http://t.co/whgDTBHakb
Andy L.
23 Oct 14 02:32:06
RT @StockSignaling: Services Sector: Upgrades: $BABA $FRO $ARO $SSI $ODP $DRI $CLUB $NCLH $PLCE $VAC $AL $CHTR $COST $WERN $NWSA http://t.c…
Stock Signaling
23 Oct 14 02:31:23
Services Sector: Upgrades: $BABA $FRO $ARO $SSI $ODP $DRI $CLUB $NCLH $PLCE $VAC $AL $CHTR $COST $WERN $NWSA http://t.co/Vtx6dLy0Nw #analyst
22 Oct 14 20:25:02
Darden Restaurants : Board Appoints Additional Director http://t.co/TPpY6yZ3Bx $DRI $EAT
Vizimi Stocks
22 Oct 14 19:03:21
Wednesday 10/22 News: $DRI volume down for the 5th day in a row #NYSE #stocks
Vizimi Stocks
22 Oct 14 18:54:03
Wednesday 10/22 News: $DRI closed up for the 7th day in a row for the first time since July 2013 #NYSE #stocks
22 Oct 14 16:07:01
DRI 49.52 Stock Charts $DRI Darden Restaurants Inc. (NYSE) Last Updated: 10/22/2014 18:06:59 DRI Stock Chart - http://t.co/8YxnTohUHJ
22 Oct 14 14:37:45
[Volume Leaders] $BEAV 5.25% 4/1/2022 $DRI 6.8% 10/15/2037 Reynolds Group 5.75% 10/15/2020 (1) $NIHDQ 7.625% 4/1/2021 http://t.co/BwNaUx5T4J
22 Oct 14 13:35:39
@nachoswithsalsa This month, I sold out $DRI for a little gain. I bought $BTE @ $39.79!! $CVX bull put spread $105/$100 Dec 20, 2014.
22 Oct 14 11:10:48
Zacks Upgrades Darden Restaurants to Neutral $DRI http://t.co/FxnG93tytj
22 Oct 14 10:36:44
Darden Restaurants Upgraded to “Neutral” at Zacks $DRI http://t.co/4Oe4yJcoVA
Daily Contracts
22 Oct 14 10:30:02
Real-Time feed of company contracts, original agreements and executive updates from Darden $DRI http://t.co/L5y9RjG4KB
Morgan Brock
22 Oct 14 09:37:59
Food prices trek higher http://t.co/dACdNNGB4Q $CAKE, $CBRL, $CMG, $DNKN, $DPZ, $DRI, $EAT, $JACK, $MCD, $PNRA, $RRGB, $RT, $SBUX, $SONC,
Viral Vora
22 Oct 14 08:16:23
@MadMoneyOnCNBC Jim r u still recommending $KR & $DRI? Thank u.
Viral Vora
22 Oct 14 07:00:24
@jimcramer r u still recommending $KR & $DRI? Thank u.
22 Oct 14 06:51:15
60m $DRI Upper Trendline Pressure 49.600 #futures #stocks 09:50:37 AM http://t.co/WZwETG8am0 Signals based ... http://t.co/WZwETG8am0
22 Oct 14 03:39:58
Parabolic Sar Buy Signals 3/4 $DD $DIS $DRI $DTV $ERIC $FDX $FREE $GIS $GNW $HD $INTC $INTU $IRM $KMB $LLTC $LCRX http://t.co/NnfN2olqkm
Seeking Alpha
22 Oct 14 02:16:25
Why We Aren't Investing In Darden Restaurants http://t.co/nPzJnGbWxu $BKI $BWLD $CAKE $EAT $DRI
Vizimi Stocks
21 Oct 14 20:36:16
Tuesday 10/21 News: $DRI closed up for the 6th consecutive day for the first time since October 2013 #NYSE #stocks
21 Oct 14 14:27:25
Westport Select Cap Fund Q3 2014 Commentary http://t.co/N0oX038jwl $UHS $URI $DV $BRO $DRI $SNPS $FEIC $ROG
Evan Jenkins
21 Oct 14 12:07:47
@TheStalwart @bysamro How will this affect $DRI?
Paul R. La Monica
21 Oct 14 11:01:49
$YHOO up nearly 2% before earnings. But will #s satisfy Starboard? Fresh off $DRI victory, wonder if it will still push for an $AOL deal.
Seeking Alpha
21 Oct 14 06:37:20
Darden Restaurants: Not A Good Option At This Time http://t.co/p0DUtHlQjQ $DRI
Alan Farley
21 Oct 14 05:52:57
Crap numbers at $MCD and $DRI give me hope for the future of mankind.
Kyle Arnold
20 Oct 14 12:20:04
Gene Lee will get a $300k raise for taking over as interim CEO at Darden, according to SEC filings. $DRI
Daily Contracts
20 Oct 14 11:53:02
Real-Time feed of company contracts, original agreements and executive updates from Darden $DRI http://t.co/L5y9RjG4KB
Alan Neveu
20 Oct 14 11:50:51
RT @AnjaliFlukerOBJ: #Unlimited Breadsticks wins over biz travelers, @certify report shows http://t.co/fUnD3S0eaB @olivegarden $DRI http://…
Anjali Fluker
20 Oct 14 11:28:13
Cool look at the ladies of @Darden_News' new boardroom from sister pub @bizwomenTBJ http://t.co/Mq8CvnA2GD @hsb_bizwomen $DRI
20 Oct 14 11:27:43
$DRI Darden - 2014 Annual Report From our Stock News Alerts App
By  +Follow January 10, 2014 12:49PM



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.