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Olive Garden Resurgence Led Darden's Big Quarter

By Motley Fool Staff - Apr 21, 2016 at 9:50AM

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How the parent company of Capital Grille and Olive Garden cut costs and maximized profits this past quarter.

It seems people have found their way back to unlimited soup, salad, and breadsticks, and they can thank activist investors for improving their dining experience.

Darden Restaurants (DRI 0.76%) -- the parent company of seven brands including The Capital Grille, LongHorn Steakhouse, and Olive Garden -- reported very nice fourth-quarter results recently. In this segment from the Motley Fool Money podcast, Chris Hill and Jason Moser look at the significant role activist investors played in the company's turnaround and go over a few moves Darden has made to improve efficiency.

A transcript follows the video.

This podcast was recorded on April 8, 2016. 

Chris Hill: Darden Restaurants is the parent company of The Capital Grille, LongHorn Steakhouse, and, of course, Steve Broido's beloved Olive Garden. Quarterly results look pretty good, and the same-restaurant sales looked pretty good, particularly at Olive Garden.

Jason Moser: Very good, indeed. This is one of those cases where shareholder activism has really helped the cause. I think it was maybe 18 months ago or so, Starboard Value got in there and really started making some waves about Darden having to streamline its operations, get rid of underperformers, so Red Lobster is no longer part of that operation. They felt like a bit more salt in the water in cooking the pasta would make...

Hill: Too many breadsticks.

Moser: I mean, who knows? They felt like they were giving a lot of things away, weren't really running an efficient operation. So, I think this maybe is a case where that activism has helped, because as you mentioned, same-store sales performing very well, Olive Garden reported the sixth consecutive quarter of same-store sales growth, and that really is the crown jewel of this company at this point. There's a little bit more than 1,500 restaurants they have in total. Most of them, more than half of them are Olive Gardens. Most of them are company-owned stores.

So, I think that they have taken the underperformers, streamlined the operations, really focusing on the strengths in Olive Garden and things like LongHorn Steakhouse, Capital Grille. And the successful restaurant companies are going to be the ones that are able to incorporate a number of different brands and concepts under their umbrella. And it seems like Darden has turned a corner here, and there could be brighter days ahead for shareholders.

Let's bring in our man from the other side of the glass. Steve, in the last 18 months or so, have you noticed a positive difference in your Olive Garden experience?

Steve Broido: I'll tell you this. I've been sick as a dog. And this week, I did go to the Olive Garden in the middle of the day and I ate my face off, and it was just tremendous. It's a good place to go. It was nice. The meal was good. A lot of refills on my beverage. I had a good time there. 

Hill: Comfort food, like to hear it.

Moser: Well, that's a 5% boost to the stock right there. (laughs) 

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