Olive Garden: Unlimited Breadsticks, Unlimited Problems

Olive Garden parent Darden Restaurants' going to get a new CEO, but the company still has lingering problems.

Jul 30, 2014 at 6:03PM

"When you're here, you're family," is the slogan that Darden Restaurants (NYSE:DRI) used to promote its Olive Garden casual dining chain for more than a decade before moving to a new marketing mantra in 2012. It's probably for the best, since Darden's own family is in for a bit of a shake-up. 

Chairman and CEO Clarence Otis is stepping down after a decade at the helm. He'll be gone by the end of the year. It's not really a surprise: Fending off activist investors while dealing with the restaurateur's recent sluggish performance will turn any executive chair into a hot seat. However, watching the stock open higher on Tuesday morning on the news that broke after market close on Monday is a bit of a shock.


Source: Olive Garden.

Darden's problems go beyond simply replacing its CEO. Olive Garden has rattled off four consecutive quarters of negative comps, while Darden as a whole has missed Wall Street's profit targets in four of the past five quarters. Investors may want to blame the CEO -- turning him away like stale breadsticks -- but there's a larger trend working against Italian casual dining chains that goes beyond the person calling the shots. 

If the stock is rallying on the prospects for an executive shuffle resulting in an outright sale of Darden, the market may be sorely disappointed in the end result. After all, Darden on Monday completed the sale of Red Lobster -- a concept that was faring worse than Olive Garden -- and activists are angry that it didn't get enough for the struggling seafood chain. Why would Olive Garden command a much loftier market premium? It's not as if Red Lobster was a secret pocket listing. It had been trying to publicly smoke out a suitor for months.

Given that casual dining has been out of favor with investors outside of a handful of market darlings, it's hard to fathom Darden as a buyout candidate. Darden does have some promising younger concepts in its portfolio, but it can't turn Seasons 52 or Yard House into needle-moving companies without selling Olive Garden in another fire sale. Either way, now with Red Lobster gone, Olive Garden contributed 57% of Darden's revenue in its most recent quarter. Darden won't reward investors until it fixes Olive Garden.

It is good to see Darden announce that it will separate the CEO and chairman positions, but simply doubling up on Otis' former tasks will not make Olive Garden relevant again. We've been through enough menu changes and decor remodels to know that it's not going to shake its role as a punchline when someone wants to poke fun at a mass marketer of Italian cuisine. 

When you're here you are family. The rub is that you're a dysfunctional family.

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 Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

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