Valued Client,
5-10 minutes prior to the 11AM EST start time please dial:
(Toll Free) or (Direct)
Conference Code: 429126#
Materials: * PLEASE NOTE MATERIALS WILL BE SENT OUT TOMORROW MORNING PRIOR TO THE START OF THE CALL.
To submit questions for the live Q&A, please email .
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"IS DARDEN TOO BIG TO PERFORM"
"Too Big To Perform" is a turn of phrase that our CEO, Keith McCullough, loves to use to describe the mega-banks that make up the Old Wall. We think Darden is in danger of falling into that same category within the restaurant space. While the company generates ample cash flow, the reasons to own this stock, in our view, are increasingly moving away from fundamentals such as market share and toward a blinkered perspective on "hitting numbers" and - of course - that generous yield. Still, the Street's optimism seems to be based on an Olive Garden turnaround and future growth prospects. We do not share this view and would caution against owning the stock over the next three years.
Our restaurant research team led by Howard Penney will be hosting a conference call on Darden, TOMORROW, Thursday, July 19th at 11am EST.
We will address the following topics, among others:
- Management (and executive compensation) is laser-focused on growth. We think that is a problem when the company's two largest brands are struggling to gain any sustained traction with consumers
- Blind dedication to a "rate of growth" target independent of a changing operating environment can be a fatal mistake. Growth can mask issues, particularly of the transient variety, but the issues at Olive Garden and Red Lobster are long-standing and require significant attention.
- Inconsistency in the company's rationale behind its top-line strategy at Olive Garden. We are not deducing a clear message from the company regarding its ability to stop the sustained traffic losses at Olive Garden.
- Massive CapEx demands. The company is facing a prolonged period of investment into its largest chain. Getting this effort started in earnest is taking more time than many were expecting.
- The margin gap between Darden and some competitors offers clues as to how management could seek to bring about sustainable positive momentum in their largest business.
Please reply to this email with any questions.
Howard Penney
Managing Director
Rory Green
Analyst
