Image: Darden Selling Red Lobster Under Pressure From Investors

Darden Selling Red Lobster Under Pressure From Investors

Monday, 23 Dec 2013 01:28 PM

By Clyde Hughes

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Under pressure from investors, Darden Restaurants is looking to unload Red Lobster after the chain failed to rebound over the past fiscal year.

With 705 restaurants in the United States and Canada, Red Lobster is the largest full service dining seafood specialty restaurant operator in North America, according to the Associated Press. However, while the restaurants did about $2.6 billion in business in 2013, it wasn't good enough to reduce expenses.

"Of all of Darden's restaurant chains, Red Lobster was the worst performer in this year's second quarter with a 5.2 percent decrease in sales and a 4.5 percent decrease in the third quarter, despite various attempts at promotions and the addition of more non-seafood options to attract more customers," according to Carolyn Heneghan with Motley Fool.

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"As a result of falling sales and profits, activist hedge fund Barington Capital Group, which owns over two percent of Darden shares, proposed that Darden break up its empire into as many as three separate businesses. This included the separation of both Red Lobster and Olive Garden, another of its chains."

The AP reported that the company plans to either sell or spin off Red Lobster to boost its own value for its shareholders. Darden also announced it will hold off on opening any new Olive Garden locations and will slow the launch of new Longhorn Steakhouse restaurants.

"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," Darden CEO Clarence Otis said in a statement, according to Fox Business.

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Barington, which got the Red Lobster separation ball rolling, told Fox Business though its CEO James Mitarotonda that Darden's move was only a "first step forward" for the company, but it "fails to address significant additional opportunities to enhance long-term shareholder value. We believe that Darden can and should be doing more to improve value for its shareholders."

Former Red Lobster president Kim Lopdrup, currently president of Darden's specialty restaurant group, will serve as Red Lobster's new CEO following the separation, according to Fox Business.

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