Dec. 19 - Darden Restaurants is looking to get rid of the Red Lobster chain after an activist shareholder pressured it to split the company and consumers crimp on dining out. Fred Katayama reports.
Darden will pull Red Lobster off its menu of restaurants. It plans to spin off the chain, but may consider selling it. The operator of brands like Olive Garden and LongHorn Steakhouse will also hold off on acquiring new brands for now. Darden has been struggling as consumers have crimped on dining out, opting instead for cheaper fast-casual alternatives like Chipotle. The move comes after activist investor Barrington Capital called on Darden to split its mature brands like Red Lobster and Olive Garden from its higher-end, faster-growth chains like Capital Grille. Miller Tabak senior analyst Stephen Anderson says investors will eventually appreciate the move because it will "sharpen management's focus on restoring Olive Garden, which post-Red Lobster will comprise more than half of Darden's sales, to more consistent sales growth." But Darden's second quarter results out today left a sour aftertaste. Profits plunged, and Darden sees a further decline in earnings next year. And so, investors sold off Darden's stock at the market open. Its shares have vastly underperformed those of rivals like Cheesecake Factory and Cracker Barrel over the last five years.