On Monday, Darden announced that long-time chairman and chief executive officer Clarence Otis was "stepping down" at the end of the year or when a successor is named, whatever comes first. Appointed CEO in 2004, Otis was lauded in Monday evening's press release for having overseen a total shareholder return of 133% during his tenure. The announcement also noted that the number of restaurants rose during the same period to more than 2,200 from 1,381 as Otis primarily expanded the Olive Garden, Red Lobster, and Longhorn Steakhouse chains.
What Darden neglected to mention--but what activist investment fund Starboard Value would quickly point out--are the problems that have befallen the company with Otis at the helm. The business is in a long-term free-fall--owing to demands by consumers for fast service and fresh, locally sourced ingredients--so the company may have trouble finding a top excecutive to replace Otis. That potential void in leadership, and the financial trends themselves, should be of major concern to Darden shareholders.
Although Darden completed the $2.1 billion sale of Red Lobster to private equity firm Golden Gate Capital on the day that Otis stepped down, the unit's poor performance is a reflection of Otis' stewardship. Red Lobster's same-restaurant sales have declined in five of the past six quarters, according to Bloomberg data. Olive Garden has had the exact same results, while Longhorn Steakhouse continues to be a lone bright spot, having posted five consecutive quarters of same-restaurant sales gains.