(Recasts throughout; adds Barington Capital comment, Starboard action)
March 3 (Reuters) - The activist investor seeking to split Darden Restaurants Inc into two companies said on Monday it has lost confidence in its chief executive's ability to run the company.
Barington Capital Group LP wants Darden to put its more-mature Olive Garden and Red Lobster brands into one company and its higher-growth chains, including LongHorn Steakhouse and the Capital Grille, into another. It also has called on the company to create a publicly traded real estate investment trust (REIT) to unlock the value of its property holdings.
Darden on Monday reiterated it would proceed with its own plan to spin off or sell Red Lobster, rebuffing Barington and Starboard Value LP, another activist investor that is pressuring Darden to rethink its plans for the seafood chain.
Darden, the largest U.S. operator of full-service restaurants, also warned that its third-quarter profit fell far short of Wall Street expectations, blaming severe winter weather for hammering sales.
"Darden's deteriorating financial performance and decision to continue to separate Red Lobster without pursuing opportunities to monetize its valuable real estate have caused us to lose all confidence in the ability of (CEO) Clarence Otis to manage the company," Barington Chairman and CEO James Mitarotonda said in a statement.
Barington previously had called on Darden's directors to split the chairman and chief executive roles.
Shares in Darden were down 5.6 percent at $48.22 in late afternoon trading on the New York Stock Exchange.
Darden and other established full-service restaurant chains have been struggling to compete with newer chains including Panera Bread Co and Chipotle Mexican Grill Inc, which use more upscale ingredients such as organic produce and antibiotic-free meats and do not offer table service, eliminating the need for patrons to tip.
Starboard, which owns 5.5 percent of Darden, said last week that Darden's plan to spin off Red Lobster should be delayed and put to a shareholder vote. Barington, which has a stake of about 2 percent, agreed.
Darden said on Monday that its board had explored the tax-free spinoff of a REIT and other strategic and financial alternatives with its advisers and determined that the plans announced in December were the best way forward.
The company said it remained on track to execute its plan to separate the Red Lobster business through either a tax-free spinoff to Darden shareholders or a sale, adding that the sale process was well under way.
The company also said it expected to earn 82 cents per share from continuing operations for the quarter ended Feb. 23. Analysts on average had expected 93 cents per share, according to Thomson Reuters I/B/E/S.
Lower sales and higher direct costs associated with severe winter weather had reduced earnings by about 7 cents per share in the third quarter, Darden said.
The Orlando-based company estimated that U.S. same-restaurant sales fell 5.4 percent at Olive Garden and 8.8 percent at Red Lobster.
Darden is due to report third-quarter earnings on March 21. (Reporting by Lisa Baertlein in Los Angeles and Aditi Shrivastava in Bangalore; Editing by Kirti Pandey, Ted Kerr and G Crosse)