ORLANDO, FL – Starboard Value has continued its criticism of Darden Restaurants, a topic that has not been alleviated by the release of its Q1 financial report.
The Wall Street Journal reports that activist investor Starboard Value LP launched a 300 page presentation last week hosting a variety of criticisms of Darden’s handling of the Olive Garden chain. The key complaint was that Darden could save as much as $5 million annually by cutting back on free breadsticks.
Darden responded to Starboard with a 24-page presentation of its own defending its plan to turn around Olive Garden, saying that many of Starboard's suggestions are currently taking place.
"We remain open minded toward all ideas that support long-term value creation for our shareholders and improve the dining experience for our guests," said Gene Lee, President and Chief Operating Officer of Darden. "While we will carefully and thoughtfully review Starboard's plan, which has been promised by Starboard for some time, upon initial review, we believe many of the brand and cost optimization strategies are already being implemented across our company and are showing results."
For the past year, Darden has been working on reigniting traffic growth and support margin expansion with its Olive Garden Brand Renaissance. The key initiatives of the program have included simplifying culinary operations and enhancing service, introducing a core menu innovation, pursuing a new approach to advertising and promotions, and launching a re-imaging program.
"We are pleased with the progress we are achieving across our brands, particularly at Olive Garden," said Lee. "The Olive Garden Brand Renaissance is well underway, and the improvements we are seeing in guest satisfaction and traffic trends reinforce our confidence in Olive Garden's potential. At LongHorn and the Specialty Restaurants, our actions to enhance the guest experience are also delivering positive results as demonstrated by the increases in same-restaurant sales.”
In Q1, the company saw U.S. same-restaurant sales of +2.8% for LongHorn Steakhouse, -1.3% for Olive Garden and +2.1% for its Specialty Restaurant Group.
- Olive Garden sales totaled $913.5 million, which represented a 0.5% decline over the previous year. The company said that higher food and beverage expenses and restaurant labor expenses were offset by lower selling and general and administrative expenses.
- LongHorn sales were up at $356.9 million, representing a 9.7% increase. This increase has been driven by the revenue from 27 net new restaurants and the U.S. same-restaurant sales increases.
- The Specialty Restaurants saw Q1 sales of $322.3 million, representing a 14.5% increase. These numbers come from four new restaurants at The Capital Grille, one at Bahama Breeze, nine at Seasons 52, three at Eddie V’s and seven at Yard House.
Darden also reported a diluted net loss per share of $0.14 from continuing operations for its Q1 with diluted net earnings per share from continuing operations, on an adjusted basis, of $0.32.
Looking forward, Darden expects diluted net earnings per share from continuing operations of $1.74 to $1.84 for fiscal 2015. As for diluted net earnings per share from continuing operations on an adjusted basis, the company anticipated $2.22 to $2.30 for the year. Darden projects that U.S. same-restaurant sales growth for fiscal 2015 for Olive Garden, LongHorn Steakhouse and the Specialty Restaurant Group will be flat to +1%, +1% to +2% and approximately +2%, respectively.
Stay tuned to AndNowUKnow as Darden and Starboard continue to battle it out over the future of Olive Garden.
