Apparently, I am not the only one concerned about DRI’s growth outlook as management was questioned on its conference call this morning about its continued commitment to restaurant development at Red Lobster in 2H09 relative to the concept’s performing below expectations. CEO Clarence Otis replied by saying that from a traffic standpoint, Red Lobster has outperformed the industry in the last couple of years with a materially higher average check, which leads him to believe Red Lobster has performed strong competitively. I found this answer to be a little surprising because the industry has experienced negative traffic for the better part of the last three years so outperforming these negative metrics will not lead to enhanced returns.
Additionally, Mr. Otis said that the decision to add new Red Lobster units is more of a restaurant by restaurant and market by market type of analysis. “I don't know that we have a pace of expansion that we think makes sense versus we scour the country and look at the markets and decide market by market does this restaurant make sense from a return perspective. And so it is very much a bottom up driven expansion. Here's a market that's expanded, that is strong a trade area we think we can get X guests out of. It makes sense to open this restaurant. All that adds up to five one year, other years to ten. It is more about that, and to the extent that the guest count level that we start to make that restaurant by restaurant assumption from is lower and we scale out over 30 years, fewer trade areas will make sense. So that's a little bit of how we think about Red Lobster. I don't know that there's a master plan as opposed to a unit by unit investment decision.” I found this comment to be interesting because if the CEO does not know the master plan, who does? Given the trends in the quarter and the outlook for the balance of the year combined with the current level of unemployment, trends in macro factors would point to a different strategy.