(Adds details on proxy fight, analyst comment)
By Shailaja Sharma and Lisa Baertlein
June 20 Darden Restaurants Inc, battling
an activist investor that wants to replace its entire board of
directors, on Friday reported lackluster results at its flagship
Olive Garden chain as it prepares to complete the sale of Red
Lobster next month.
Starboard Value LP launched its effort to replace Darden's
board shortly after the restaurant operator's May 16
announcement that it planned to sell Red Lobster to Golden Gate
Capital for $2.1 billion.
Starboard, which sought a shareholder vote on the Red
Lobster sale, called the deal a "destructive transaction" that
ignored shareholder rights. It nominated a full 12-candidate
slate for election at the company's annual meeting, scheduled
for Sept. 30.
Starboard, backed by fellow activist investor Barington
Capital Group, has said it had identified other ways to save
costs, boost revenue and improve profits at Darden.
Starboard owns 6.2 percent of Darden, while Barington
represents shareholders holding more than 2 percent.
Darden on Friday said the sale was on track to close in July
and that it expects to receive $1.6 billion after tax and costs.
The Orlando-based company plans to bolster performance of
the Olive Garden chain through remodels, menu additions, a new
logo and advertising. Olive Garden is expected to account for
almost 60 percent of Darden's sales after the sale of Red
To that end, Darden said it expects sales at established
Olive Garden restaurants to be flat to up 1 percent for the year
ending May 2015.
Olive Garden's same-restaurant sales have remained weak amid
intense competition, and they fell a steeper-than-expected 3.5
percent for the fourth quarter ended May 25.
"Olive Garden continued to disappoint ... perpetuating
ongoing concerns that the core business will need more
meaningful changes in strategy if it hopes to regain its
momentum," Bernstein Research analyst Sara Senatore said in a
Darden's fourth-quarter net income fell 35 percent to $86.5
million, or 65 cents per share, during the quarter. Costs and
charges tied to the pending Red Lobster sale reduced profit by
19 cents per share.
Miller Tabak analyst Stephen Anderson, in a client note,
called Darden's latest quarter "messy." Still, he said, the
post-Red Lobster company could have lower overall expenses, less
exposure to volatile seafood prices, a stronger balance sheet
and, for the first time in several years, positive free cash
Darden, which also owns the LongHorn Steakhouse, Seasons 52
and Capital Grille chains, forecast full-year adjusted earnings
of $2.22 to $2.30 per share, compared with the average analyst
estimate of $2.79, according to Thomson Reuters I/B/E/S.
Shares of the largest operator of full-service restaurants
in the United States were down 2.6 percent to $48.24 in midday
(Reporting by Lisa Baertlein in Los Angeles; Editing by Joyjeet
Das and Gunna Dickson)