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Darden Restaurants (DRI) will divest its Red Lobster seafood chain and slash spending as the struggling company confronts persistently poor financial results and a hedge fund that has been agitating for changes. Today’s results, which missed Wall Street’s expectations, highlight a continuing problem for Darden and other casual dining chains: Americans are no longer going out to eat as often as they did before the 2008 financial crisis.
The biggest problem at Darden is Red Lobster, where sales dropped 4.5 percent in the last quarter and customer traffic was down 7.7 percent. Overall, Darden said its full-year profit for fiscal 2014 will decline as much as 20 percent from 2013, with same-store restaurant sales all falling at Olive Garden, Red Lobster, and LongHorn Steakhouse.
Darden said it would complete a tax-free spinoff of Red Lobster in mid-2014 but would also contemplate a sale of the chain, which has 705 locations in the U.S. and Canada and had $2.6 billion in sales last year. “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 Chairman and Chief Executive Clarence Otis said in a statement today. The company also said it would halt its expansion into new brands—it has eight now, including Olive Garden, Capital Grille, and Yard House—and curb the pace at which it opens new restaurants. Darden also said it will bolster an effort to cut annual costs, adding $10 million to the previous $50 million goal.
Read more from BloombergBusinessweek here.