Red Lobster is floundering, and the seafood chain’s owner is ready to throw it overboard.
Darden Restaurants, facing heat from an activist shareholder to improve performance, said it will sell or spin off the 705-unit chain, the most mature in its restaurant brand stable.
The Orlando, Fla.-based company also promised to stop carpeting the US with more of its Olive Gardens.
The moves are meant to slash costs and stem losses. Darden, whose percentage stock gains are less than half of those of the S&P 500 over the last year, said Thursday this year’s earnings will fall more than expected.
The news sent shares tumbling 3.6 percent, to $51.02.
Barington Capital, a 2-percent shareholder that has pressed for spin-offs to create real-estate trusts to boost the stock price, said Thursday that the company’s moves were “incomplete and inadequate.”
Janney Capital Markets analyst Mark Kalinowski agreed, noting that Darden still owns numerous restaurants that require attention, including Olive Garden.
“We are somewhat puzzled that what will be left behind is still a seven-brand company in an industry in which succeeding over the long term with one brand can prove challenging,” Kalinowski said.
The restaurant operator has become a poster child for the woes of the casual dining sector, whose cash-strapped patrons have been slammed by the bifurcated economy.
But critics say Darden has created its own recipes for disaster as it struggles to compete with rivals like Chipotle, Cheesecake Factory and Brinker International, the owner of Chili’s.
Last month, despite concerns among analysts that Olive Garden’s menu has become too eclectic, the Italian chain added hamburgers to its repertoire.
Darden said it expects to complete a tax-free spin-off of Red Lobster, which accounts for about 30 percent of its revenue, in early 2015.
Darden said it would also consider selling Red Lobster, but some investors were skeptical whether it would find a buyer.
For the fiscal year ending May 31, Darden warned it expects earnings will fall 15 to 20 percent, versus a previous forecast for a 3 to 5 percent drop.