Darden Restaurant Inc.'s Olive Garden posted a 0.6-percent gain in September same-store sales compared with last year, the company said Thursday, ahead of its Oct. 10 annual shareholders’ meeting.
Orlando, Fla.-based Darden reported September sales at its 465-unit LongHorn Steakhouse brand rose 3.2 percent. Comparisons at four of its smaller brands also increased.
The only decrease was at 37-unit Bahama Breeze, which saw same-store sales decline 0.3 percent. Olive Garden is Darden’s largest brand, with 840 units.
“It has not been DRI’s custom to publish monthly comps since the late 2000s, but we think management is using this opportunity to convince shareholders to maintain the company-sponsored board slate in front of the Oct. 10 shareholders’ meeting,” wrote Miller Tabak + Co. analyst Stephen Anderson in a note Thursday.
Activist shareholders have launched a proxy challenge to replace Darden’s entire 12-member board at the upcoming shareholder meeting.
Starboard Value L.P. and another activist investor, Barington Capital Group L.P., have been pressing for changes at Darden since late last year, even before the company said it would sell its 706-unit Red Lobster division. Golden Gate Capital acquired Red Lobster in a $2.1 billion deal, completed in July.
Anderson said Darden’s blended same-store sales increase of 1.8 percent in September was above his estimates of 1.4 percent for the full quarter.
September same-store sales rose 6.4 percent at 54-unit Capital Grille; 3.8 percent at 53-unit Yard House; 1.3 percent at 40-unit Seasons 52; and 4 percent at 15-unit Eddie V’s.
The positive September sales report, Anderson added, offered “some redemption” for the company, “which currently is under pressure from activist investor Starboard Value Fund and whose board last week received a vote of no-confidence from leading proxy advisory firms ISS and Glass-Lewis.”
KeyBanc Capital Markets analyst Christopher O’Cull said in a note that “we believe there is a high probability that Starboard's nominees win more than half of the 12 seats up for election on Oct. 10.”
Baird Equity Research analyst David Tarantino said in his Thursday note that “we remain cautiously optimistic that DRI can drive further improvement at Olive Garden (key driver of long-term value), although we still have concerns that the path to achieving sustained positive momentum could remain choppy, especially if Starboard gains control of the company.”
Citing items related to the Red Lobster sale, Darden reported on Sept. 12 a first-quarter net loss of $19.3 million, or 14 cents per share, compared with a profit of $42.2 million, or 32 cents per share, in the same period last year. Excluding non-recurring special items, the company's earnings were 32 cents per share. Revenue in the Aug. 24-ended first quarter was $1.6 billion, an increase from $1.5 billion a year ago.
Darden has 1,504 casual-dining restaurants.
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