We view favorably management's decision to reduce capital expenditures by more than 10% in fiscal 2014 through reduced core brand unit growth, which should provide additional resources to improve its competitive positioning and invest in nascent SRG chains.
We believe that Darden's core brand traffic issues are correctable through everyday affordability efforts, new menu enhancements (affordable lunch options, takeout, and smaller plates), and remodel activity.
Darden's commitment to dividends and share repurchases should lift total shareholder returns in the medium term. Read more
Stagnant employment trends and restricted consumer budgets continue to pressure casual dining guest counts. Many restaurants have turned to aggressive discounting to reverse this trend.
Management has admitted that the casual dining price premium relative to other segments has been tougher to justify in today's environment. This provides a troubling picture of the balance of relative pricing power between the casual dining and fast casual players.
Industry price competition has taken its toll on the firm, and Darden's recent acquisitions could potentially exacerbate the issue. Read more
Clarence Otis was appointed CEO in November 2004 and chairman in November 2005 after a decade-long tenure at Darden. In fiscal 2013, his total compensation was around $6.4 million (but only $1.2 million of a base salary), which we find reasonable relative Read more
With more than 2,150 locations, Darden is one of the leading players in the $75 billion U.S. casual dining industry. Olive Garden (832 units), Red Lobster (704), and LongHorn Read more