Filed under: Company News, Consumer Goods, Restaurants
Friday morning's tally at Darden's annual shareholder meeting wasn't a huge surprise. Investors elected all 12 of the directors that hedge fund firm Starboard Value nominated, leaving the eight nominees that Darden brought to table out of the boardroom. Starboard had just an 8.8 percent effective stake in the restaurant operator, but it had been raising a stink in recent months about Darden's sloppy performance.
Its displeasure culminated in a 294-slide presentation that took Darden to task for everything from not generating a high enough price for the sale of Red Lobster earlier this year to the lack of alcohol sales at Darden's LongHorn Steakhouse.
Most of the presentation's critiques were directed at Olive Garden, where some of the widely circulated gems included calling the chain out for being too liberal with its breadsticks and salad dressing, failing to add salt to the water before boiling pasta, and having too many choices on the menu.
Bored of Directors
Darden's woes center around the weakness at Olive Garden, where comparable-restaurant sales have fallen for five consecutive quarters. Darden also runs LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V's and Yard House, but all of those better-performing chains still combine to make up a minority of the revenue mix. With Red Lobster out of the picture, Olive Garden now accounts for 57 percent of Darden's top-line results.
Darden executives had lost Wall Street's confidence due to the pronounced weakness at Red Lobster and Olive Garden. The resignation of its CEO wasn't enough of a sacrificial lamb for activists seeing marinara-red over the fall from grace at two of casual dining's iconic chains.
Friday morning's preliminary report wasn't all bad. Shareholders approved the company's auditor and its executive compensation on an advisory basis. They also voted against a pair of shareholder proposals. However, with activists now taking over the boardroom, there's a fair chance that there will be friction between Darden's directors and its executives. Can the two sides that have been at war over the past few months come together for the greater good -- and the greater food?
It's All About Dough in the Bread Basket
There's no denying that Olive Garden is in a funk. The disagreement all along has been about whether or not Darden is really turning things around. Darden claims it's on the right track, and just a few days ago it issued a news release detailing that same-restaurant sales at domestic Olive Garden locations had inched 0.6 percent higher for the month of September. Darden had never put out monthly updates before.
In another sign that the proxy battle was going to be hotly contested, Darden spent the past couple of weeks putting out news releases from advisory firms siding with its director nominees, endorsing its turnaround strategy.
It clearly wasn't enough. The new directors are coming, and new directives are likely to follow.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.
