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$DRI: DARDEN RESTAURANTS HEDGEYE POLL

This note was originally published February 27, 2014 at 14:49 in Restaurants

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.

 

$DRI: DARDEN RESTAURANTS HEDGEYE POLL - redl

 

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.

 


DARDEN RESTAURANTS HEDGEYE POLL

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

 


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MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING

Summary:  The softness in New Durable & Capital Goods Orders extends itself in January.  The labor market continues to improve but at a slowing rate.  Bloomberg’s high frequency read on Consumer Confidence printed its best reading in 6 wks but the current trend remains equivocal.    

 

Meanwhile, the preponderance of domestic, fundamental macro data continues to suggest slowing growth – a trend the market continues to discount as utilities, bonds, and gold/commodities continue to outperform pro-growth leverage.

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - Eco Summary 022714 

 

 

DURABLE GOODS:  Unsurprising softness following January ISM and Retail Sales 

Headline New Orders: Durable Goods declined for two consecutive months for the first time since October 2011 as January New Orders declined -1.0% MoM, unable to comp Decembers -5.3% MoM decline.  The 23% MoM increase in Defense Orders in January helped buttress the headline reading against broader private sector softness

 

New Durable Goods Orders Ex-Defense & non-defense Aircraft:  Orders ex-Defense and Aircraft - perhaps the best of the sub-aggregates in gauging household consumerism - remained negative on a MoM basis and decelerated on a YoY basis.   

 

Capital Goods Orders:  The great 2014 capex resurgence narrative remains in a holding pattern as Core Capex Orders growth retraced Decembers MoM decline but posted its first YoY decline in 10 months.

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - Durable Goods

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - IS Ratio

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - Durable Goods Jan Table 022714

 

 

INITIAL CLAIMS:  SLOWING IMPROVEMENT

After last week’s counter-trend move to 4-weeks of steadily deteriorating improvement in the initial claims data, this morning’s data again reflects a deceleration in the rate of improvement in the domestic labor market. 

 

The year-over-year rate of improvement in rolling NSA initial jobless claims decelerated to -4.4% from -5.4% WoW as the YoY rate of change worsened to +0.13% YoY vs. -8.4% the week prior.    

 

On a seasonally-adjusted basis, initial jobless claims rose 14k to 348k from 334k WoW, as the prior week's number was unrevised lower by 2K. Meanwhile, the 4-week rolling average of seasonally-adjusted claims was flat WoW at 338K. 

 

To be clear, the trend in the labor market is still one of improvement but, in contrast to last year which was largely characterized by accelerating improvement, the prevailing trend YTD has been one of deceleration. 

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - CLaims NSA 022714

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - CLaims SA 022714

 

CONFIDENCE:  Bloomberg’s weekly survey of Consumer Comfort printed its best reading in 6 weeks but, across the primary confidence surveys, the data remains mixed and the current trend largely equivocal with the University of Michigan and Conference Board surveys flat and modestly lower sequentially in February, respectively. 

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - Confidence 022714

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - Confidence table 

 

Christian B. Drake

@HedgeyeUSA

 

 

 

 

 

 

 


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