Earlier this week Starboard announced that they intend to call a special meeting to halt the spinoff of Red Lobster. We have expressed our concerns with management’s plan because, to us, it makes little strategic sense and doesn’t get at the heart of the problem.
Darden is still a company with an inefficient operating structure.
On the day Darden’s strategic plan was announced, the stock closed down 4% to $51. This didn’t exactly strike us as a vote of confidence in management’s plan to create value. Two days later, Starboard Value announced a 5.5% position in the company and the stock rallied 6%. For the most part, the stock has traded sideways since then, until rallying 3% on the news that Starboard retained former Olive Garden president Brad Blum to serve as an advisor in its battle against Darden.
The takeaway from stock action and, in our opinion, sentiment since 12/20/13 is the stock rallies when there is movement toward replacing management and sells off when management publicly digs their heels in.
We’ve heard management talk about a plan to fix Olive Garden for five years now, but, they continue to over promise and under deliver. The current team has had ample time to fix the brand and has failed miserably.
It is time for significant change.
To review, we’ve included some brief thoughts on why management’s strategic plan makes very little strategic sense and could actually end up destroying value.
- Red Lobster may become less profitable and, as a result, less valuable.
- The plan does not address the issue of managing multiple brands.
- Management’s proposed initiative simply removes one underperforming brand from a large portfolio.
- Clarence is building a moat around his castle.
- They are not cutting unit growth or costs as aggressively as they should.
- There is no real plan to fix Olive Garden.
- Management has lost all credibility to hit targets.
We certainly have a strong opinion on the matter, but we’d like to hear from you.
PLEASE CLICK HERE TO TAKE THE POLL https://app.hedgeye.com/feed_items/33809-darden-restaurants-hedgeye-poll?page=1