Darden Posts Loss In Q1, To Review Starboard Transformation Plan

(RTTNews) - Darden Restaurants, Inc. (DRI) Friday reported a loss from continuing operations for the first quarter, amid fractional rise in sales. The company said it would carefully review a transformation plan put forward by its key shareholder Starboard Value LP. The stock climbed more than 4 percent in pre-market activity.

The company noted that the Olive Garden Brand Renaissance is well underway, and the improvements seen in guest satisfaction and traffic trends reinforce Darden's confidence in Olive Garden's potential.

Loss from continuing operations was $19.3 million or $0.14 per share, compared to profit of $42.2 million or $0.32 per share last year.

The latest results include two cents of Red Lobster related shared support costs, three cents of costs related to other aspects of the company's strategic action plan, four cents related to restaurant impairment charges and 37 cents of debt breakage costs related to the retirement of $1 billion of debt.

On an adjusted basis, net earnings per share from continuing operations were $0.32. On average, 23 analysts polled by Thomson Reuters expected earnings of $0.32 per share for the quarter. Analysts' estimates typically exclude special items.

Sales rose to $1.596 billion from $1.532 billion last year. Analysts expected sales of $1.59 billion.

U.S. same-restaurant sales for the first quarter were increases of 2.8 percent for LongHorn Steakhouse and 2.1 percent for Specialty Restaurant Group, and a drop of 1.3 percent for Olive Garden.

The quarterly sales growth reflected the operation of 55 net new restaurants and same restaurant-sales increases for LongHorn Steakhouse and the company's Specialty Restaurants.

Olive Garden's sales slipped 0.5 percent to $913.5 million, while LongHorn Steakhouse's sales climbed nearly 10 percent to $356.9 million. The Specialty Restaurants reported sales increase of 14.5 percent at $322.3 million.

Darden's Board of Directors declared a quarterly cash dividend of $0.55 per share on the company's outstanding common stock, equating to a $2.20 per share dividend on an annual basis.

Looking ahead to the second quarter, Darden expects adjusted net earnings per share from continuing operations of $0.26 to $0.28. Analysts expect earnings per share of $0.26.

The company expects net earnings per share from continuing operations of $1.74 to $1.84 for fiscal 2015. On an adjusted basis, the firm continues to expect net earnings per share from continuing operations of $2.22 to $2.30 for the year. Wall Street looks for earnings of $2.23 per share for the fiscal.

Separately, Starboard Value LP, one of the largest shareholders of Darden, released a detailed transformation plan for the company. Starboard has beneficial ownership of around 8.8 percent of the outstanding common stock of the company.

Starboard has identified specific opportunities to increase annual Earnings Before Interest, Tax, Depreciation and Amortization or EBITDA by $215 to $326 million, which are expected to create $15 to $26 per share in value.

The plan envisages company-wide operational improvements, a turnaround plan for Olive Garden, a Value Enhancing Strategy for Darden's real estate assets as well as a new franchising program.

Starboard believes that these improvements, along with a separation of Darden's brands and real estate, can increase the company's stock price to $67 to $86 per share, even before implementing the Olive Garden turnaround plan or franchising initiatives.

Starboard also urged shareholders to vote for its full slate of twelve director candidates for election to the company's Board of Directors at the upcoming 2014 Annual Meeting of Shareholders.

"Darden's current board has failed its shareholders for many years and has now proposed a board that is suboptimal and not in the best interest of shareholders," Starboard said.

Responding to the transformation plan, Gene Lee, president and chief operating officer of Darden, said, "While we will carefully and thoughtfully review Starboard's plan, which has been promised by Starboard for some time, upon initial review, we believe many of the brand and cost optimization strategies are already being implemented across our company and are showing results."

The stock closed up 1.1 percent on Thursday at $48.29, and gained 4.6 percent in pre-market activity.