"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.
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.