Olive Garden Can't Cook Its Way Out of This Mess

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Olive Garden's Take Our Daughters and Sons to Work Day Celebration
Scott Boehm/Olive Garden/AP
One has to wonder if Olive Garden parent Darden Restaurants (DRI) will ever get it right. The meandering casual-dining giant announced on Thursday that it's delaying its upcoming annual shareholder meeting. The event is being bumped from the end of September to Oct. 10.

Delaying a meeting by 10 days isn't the end of the world. Darden has clearly been through worse. However, we can't ignore that the reason for the delay is that it has been having difficulties getting its proxy statement materials finalized and approved by the Securities and Exchange Commission. Activist investors have been rattling the cages at Darden, and that's apparently making it harder than usual to get the required materials out to shareholders on time.

Turning to Starboard

It's been two years since I argued that Olive Garden and Red Lobster -- Darden's two flagship eateries at the time -- would never be great again. There's no reason to back off that brazen statement now.

Both concepts have been posting declining comparable-restaurant sales for several quarters, and Darden unloaded Red Lobster this summer at a price that was apparently too low for some activist investors.

Longtime CEO Clarence Otis also announced this summer that he would be retiring later this year, a move that Starboard Value -- the activist investor that has an 8 percent stake in the company and that has been the most vocal about its displeasure with Darden's performance -- claims was long overdue.

Starboard has been hard to please. Despite the resignation of Otis and the agreement to nominate just nine candidates to its dozen-member board -- opening up the board for Starboard nominees -- the activist investor wants more. It doesn't want Darden filling up the majority of the seats, even if they are independent board members. In short, this annual shareholder meeting is delayed because the war is far from over.

Spotlight on Olive Garden

With Red Lobster bowing out, it will be up to Olive Garden to carry the weight at Darden Restaurants. Darden also runs several smaller and potentially promising concepts, including Seasons 52, LongHorn Steakhouse and Yard House, but Olive Garden accounted for 57 percent of the revenue from continuing operations in Darden's latest quarter.

The spotlight shining on Olive Garden is starting to feel more like a heat lamp. Darden closed out it fiscal 2014 year with negative comparable-restaurant sales at Olive Garden for all four quarters. We'll soon find out how things played out for Olive Garden during the fiscal first quarter of 2015. Darden reports on Sept. 12, and analysts are bracing for a sharp drop in profitability.

Why have patrons turned on Olive Garden? Is it the quality of the food, the perceived value of the meals or service concerns? There are plenty of casual-dining operators smarting these days, but there are also plenty of market leaders that are doing just fine in growing their store-level traffic and sales.

A Wilting Garden?

Darden's trying to please its investors. It is taking chunks of the $2.1 billion that it sold Red Lobster for earlier this year to pay down debt and buy back shares. It's also standing firm on its quarterly dividend that adds up to $2.20 a share over the course of an entire year.

Analysts see Darden earning just $2.23 a share this year, and given the way that the company has missed Wall Street's profit targets in three of the past four quarters, one has to wonder if it will earn enough to cover its payouts.

More important, the activist distractions and Darden's emphasis on returning money to its shareholders may limit what it can do to make Olive Garden popular again. It's clear that recent menu tweaks that have included new premium salad toppings, an actual hamburger and happy hour pricing on select appetizers aren't enough. Olive Garden is still going in the wrong direction, and the longer it backpedals, the farther it will be from where it used to be when it was a concept that rocked.

Motley Fool contributor Rick Munarriz and the Motley Fool have no position in any of the stocks mentioned. Try any of our newsletter services free for 30 days.

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118 Comments

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KevinFresh Wayne Han

i work here, they hire all college kids, they go through employees like toiletpaper, were always packed, if the food was cheaper i would buy some but i see so many small portions for like 25 bucks im like damn, our manangers and employees are cool, but were understaffed cause og doesnt want to give out more than 30 hours a week now cause of the new obama care law (which i dont dont blame them) but when they have to train people so many times cause we go through so many people its stressfull. im glad they gave me a job ive been there a year i like it just wish they would give us more help instead of cutting employees and making our resturant smaller to see how much more foood they can serve in a smaller place.......i had to do dishes for 600 people by myself in 3 ours and they have made my co worker work from 9 am to 1 am 4 sundays in a row without asking him to stay past his 8 hour schedule time , a break, a meal. or thank you.........overall im just glad i have a job i guess if u dint like us then dont eat there......im an emoployee and wont eat there cause i cant afford it

September 04 2014 at 12:59 PM Report abuse rate up rate down Reply
pllove49

In a hurry...canned black beans low sodium or not...add some garlic, onions and green/bell pepper or 3 pepper and onion mix..lightly sauteed in olive ..into beans..maybe some water if beans too thick...add some oregano and maybe a little cumin...be a little generous with oregano...simmer it all a little while...serve over yellow rice...chop some onions and throw on top of beans and rice...if trying to cut down on sodium in yellow rice..use vigo low sodium yellow rice and add a packet of sazon...

September 02 2014 at 9:14 AM Report abuse rate up rate down Reply
Jack Russell

Before the economy collapse, our local Olive Garden (in Ohio) at dinner time had it's inside waiting area and outside waiting area filled with people patiently waiting to be called in. It was my favorite restaurant. Since then, the crowds are gone and the food fluctuates in quality. I'm convinced that people just can't pay the price anymore because of lost jobs and fears of losing jobs. OG has responded by controlling price by cutting back on food quality and/or are no longer paying enough for quality food preparers. As the economy improves, they'd better start raising prices, if necessary, and re-focus on food quality, menu selections and kitchen staff.

September 02 2014 at 1:06 AM Report abuse +1 rate up rate down Reply
Angel

I took my daughter to Olive Garden to celebrate her graduation as it use to be a favorite place of ours. Neither of us found anything on the menu we liked. I asked the waitress to bring a bill for our drinks and that we didn't see anything we wanted. She said not to worry about the drinks. When they were doing well, they had a better selection of pasta with meats. I couldn't find any pasta with sausage though I was told I could add it to the dish. The only thing I like there now is the salad. They really need to come up with more impressive pasta dishes instead of the plain jane pasta dishes they have now.

September 01 2014 at 10:39 PM Report abuse +3 rate up rate down Reply
willyusa66

I have been to Olive Garden a few times with my wife. I find it very difficult to find something on the menu worth ordering. The only thing I order is the lasagna, which is very good but small. I look around and all I see are women ordering salads. Add some man meals to the menu and you might attract more men.

September 01 2014 at 4:49 PM Report abuse +2 rate up rate down Reply
nascar20155

I went to olive garden in new york for the first time about a month ago, i should have known better processed meats & horrible rice, needless to say but thats the first & last time i will ever eat there.

September 01 2014 at 3:55 PM Report abuse +1 rate up rate down Reply
vthilltown802

Treat your employees like crap like The Market Basket was going too and you deserve to go under. American Mgmt, just does not get it. People will go there to eat, if they know the employee's are treated well. How much does Wall Street, have to do with this too? Those clowns should all be in jail for scamming all of us. Perhaps one day....

September 01 2014 at 2:44 PM Report abuse +2 rate up rate down Reply
1 reply to vthilltown802's comment
Joseph

breaks my heart to see DRI in deep kimchee, they got what they deserved

September 01 2014 at 3:25 PM Report abuse rate up rate down Reply
valfields44

My limited experience with Olive Garden is that it serves large portions of mediocre food.

September 01 2014 at 2:33 PM Report abuse +1 rate up rate down Reply
1 reply to valfields44's comment
nascar20155

mediocre thats a compliment.

September 01 2014 at 3:59 PM Report abuse rate up rate down Reply
mkenstup

Useless rhetoric.

September 01 2014 at 2:27 PM Report abuse rate up rate down Reply
pllove49

Winner winner chicken dinner...chicken parm...but instead of pasta...serve it with yellow rice...I use vigo yellow rice.. any good yellow rice should work though...make sure you have some sauce for that rice if you like...if you really want to carb out to the max...throw a few steamed sweet peas on top of that rice...you can go a little shy on the water when cooking rice and add a some onions and green bell pepper..dehydrated peppers should work also..enjoy..

September 01 2014 at 1:55 PM Report abuse rate up rate down Reply