Key takeaways from Barington Group's 84-page Darden proposal

Part 2
Key takeaways from Barington Group's 84-page Darden proposal (Part 2 of 9)

Why Darden underperformed its peers by about 100% over 3 years

One-year underperformance

According to Barington Group, Darden has underperformed its peers quite significantly over the past few years. The company’s one-year performance has been a lackluster -12.3%, compared to the S&P 500’s 16.2% and Darden’s peer group’s 25.5%.

One Year PerformanceEnlarge Graph

Poor performance

CEO Clarence Otis said, “Our financial performance in fiscal 2013 was certainly disappointing, with sales and earnings results that were well below what we expected when the year began,” in Darden’s 2013 company report.

Three Year performanceEnlarge Graph

It’s not just the last 12 months, however. Darden had already underperformed its peer group since 2010, as the chart shows above, underperforming its major peers by ~50% over the three-year period. Barrons recently said, “Darden needs shaking up, and a split could be a logical move. Management has been unable to reverse years of declines at the company’s key restaurants.” Net income rose by just 1% over the fiscal year 2010 and 2013, while the company added more than 300 new restaurants (16% of what it was three years ago).

Red Lobster and Olive Garden Same Store SalesEnlarge Graph

Red Lobster and Olive Garden are dragging

Revenue growth for Red Lobster and Olive Garden has underperformed their peer group quite substantially from 2010 to 2012. This is important because those two brands make up close to three-quarters of the firm’s total revenue. Throughout the third quarter of calendar year 2012 to the second quarter of calendar year 2013, the two brands may be considered some of the worst performers, reporting same-store-sales growth of -2.3% for Olive Garden and -2.8% for Red Lobster.

The importance of same-store growth

Same-store sales are an important metric to follow within the restaurant industry because it tells investors whether the restaurant’s business is garnering attention. Companies with high same-store-sales often reflect high customer receptiveness to the product offered, while those with low or negative same-store sales suggest problems with their menu or offered products.

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