Can Olive Garden Survive Without Darden?

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June 20 (Bloomberg) -- Darden Restaurants, which last month announced plans to sell its Red Lobster chain, reported fiscal fourth-quarter profit and revenue that trailed analysts’ estimates as sales at Olive Garden continued to slump. Bloomberg’s Alix Steel reports on “In The Loop.” (Source: Bloomberg)

How many more metaphors can we do?

This might distract from the point.

Activist investors do not think this red lobster sale is great.

They wanted to keep as is and spin off some real estate assets.

Analysts i talked to love this idea.

One analyst called the lobster chain a complete distraction and it was not generating any profit.

To take a look at sales from the last quarter, that's what you saw with red lobster sales down five percent, eight in the past nine quarters.

Olive garden was also down 3.5% that was better than the five percent it's all the quarter before.

It's the higher end restaurants like capital grille that showed a rise in sales.

It is there that analysts said any to focus their growth aspects which now red lobster allows them to do.

Darden is left with mostly olive garden.

They are trying to change their menu but it has not worked so far.

It offers 42% of their sales.

The biggest problem for darden has to boil down to cost.

The company is looking at inflation as high as 2.5% for its next fiscal year but it is really admin costs.

The marketing is about five percent of so that total sales and most companies are two percent.

Once you go down the path, it is hard to pull back and not hurt your same store sales growth.

That is a big issue for the company going forward.

They need to strategize about olive garden.

They need some kind of plan to either change their menu and they rolled out a lot of promotions which winds up hurting their margins.

Their margins are only very slight.

They are trying to pay down debt with the sale of red lobster and they are buying back stock.

At the end of the day, its sales and costs that are dire this point.

How much of this is really about darden and how much of this is about this slump in the dining industry?

It's kind of both.

Darden has its issues but when you take a look at the overall restaurant industry, it rose only 2.8%. it's the casual dining experience that has suffered over the last couple of years.

It's not that they are so bad, it's that the other guys like chipotle are that good.



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