Darden will spin off or sell Red Lobster, stop expanding Olive Garden


Darden Restaurants Inc. said it would separate itself from its Red Lobster business while halting expansion at Olive Garden and stopping acquisitions “for the foreseeable future.”

Orlando, Fla.-based Darden has struggled recently along with the rest of the casual dining sector as price-conscious consumers moved into the cheaper fast-casual tier that includes chains such as Smashburger and Panera.

Darden said the Red Lobster move may take the form of a tax-free spinoff to shareholders or an outright sale.


The split would tentatively be expected to close in the late spring or early summer, but Darden cautioned that “there can be no assurance that any transaction will ultimately occur.”

Red Lobster has 705 locations in the U.S. and Canada. Kim Lopdrup, currently president of Darden, will become chief executive of the seafood dining brand once it’s on its own.

Same-store sales, which strip out the volatility of newly opened or closed units, have slid more than 4% year-over-year for the last three months. Foot traffic compared with the same period in 2012 fell 7.3% last month, 9.9% in October and 5.8% in September.

Darden also said Thursday that it planned to stop opening new Olive Garden locations while also scaling back growth in its LongHorn Steakhouse chain.

And, after arranging to buy the beer-centric Yard House restaurant chain last year, Darden added that it had no other takeover aspirations.

The plan, approved by the Darden board of directors, is expected to slash $100 million annually off the company’s capital spending.

“Our industry is in a period of significant change, with relatively low levels of consumer demand in each of the past several years for restaurants generally, and for casual dining in particular,” Darden Chief Executive Clarence Otis said in a statement.

In late morning trading in New York, Darden stock was down nearly 6%, or $3.11, to $49.81 a share.

On Thursday, Darden said its profit for its fiscal second quarter ended Nov. 24 fell 42% to $19.8 million, or 15 cents a share. Revenue rose 4.6% to $2.05 billion but missed Wall Street expectations.

During the period, Olive Garden sales rose 2.4% to $869 million, largely due to added revenue from 25 new restaurants. But same-store sales declined 0.6%.

LongHorn Steakhouse added 46 new restaurants and managed a same-store sales boost of 5%.

At Red Lobster, however, overall sales for the quarter were down 4.9% to $561 million with a 4.5% decline in same-store sales.


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