Darden Considers Separation From Red Lobster

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ORLANDO, Fla. — Bowing to pressure from its shareholders after slinking sales in the second quarter, Darden Restaurants, Inc. — which owns Olive Garden, Red Lobster and a handful of other brands, including LongHorn Steakhouse, Seasons 52 and Yard House — has announced a series of changes, including possibly separating Red Lobster from the restaurant group or selling the chain.

In an earnings report released today, the company said U.S. second-quarter same-store sales fell 4.5 per cent at Red Lobster and 0.6 per cent at Olive Garden but increased five per cent at LongHorn Steakhouse. In the event of a separation or sale, the company has appointed Kim Lopdrup, currently Darden’s president of its Specialty Restaurant Group and New Business, to serve as CEO of Red Lobster.

“While we are highly confident the future is bright for both Red Lobster and Darden excluding Red Lobster, we also recognize that the operating priorities, capital requirements, sales and earnings growth prospects and volatility profiles of the two parts of the business are increasingly divergent,” said Clarence Otis, Darden’s Chairman and CEO. “By establishing two independent companies, a separation will better enable the management teams of each company to focus their exclusive attention on their distinct value creation opportunities.”

The Board of Directors also recommended reducing unit growth by suspending new Olive Garden openings and limiting new growth at LongHorn Steakhouse. It’s also said it will forgo acquisitions of any additional brands in the foreseeable future and refine compensation and incentive programs for senior management.

While the decision is not yet final, and subject to certain customary conditions, including final approval by the Darden Board of Directors and more, the restaurant group expects any separation transaction to close in early fiscal 2015.

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