Can Olive Garden Save Darden Restaurants?

Olive Garden is the biggest kid on Darden’s block

• It had Q4 sales of $926 million, which accounted for 56% of Darden’s revenues from continuing operations of $1.6 billion.

• Its 828 restaurants in U.S. and Canada represent 58% of restaurateur’s total locations .

56.322.9

20.8

Darden RestaurantsRevenue Contribution

by Concept

Olive GardenLong Horn SteakhouseSpecialty Group

Rebirth of a brand

• Darden says Olive Garden chain provides foundation for all future growth

• New “brand renaissance” program to enhance position with millennials and multicultural households

• Will use platform for renewed same-restaurant sales growth and margin expansion

• Greater emphasis placed on fresh ingredients, presented simply, with sense of Italian flair

But we’re in a new era of fast-casual dining

• Consumers are looking for fresh ingredients, customizable menus, and pleasant atmosphere

• Fast-casual chains like Chipotle Mexican Grill and Panera Bread are where growth is happening

• Segment unit growth outpaced rest of industry in 2013, expanding total locations by 6% compared to 1% decline at casual, midscale, family, and fine-dining restaurants

• Everyone from pizzerias to beer-and-wing joints wants to copy experience

That makes organic growth hard to come by

• Same-restaurant sales at Olive Garden are on downward spiral

– Q4 Revenues fell 2.7%– Comps fell 3.5%

• Trouble exacerbated by traffic falling by similar rates

Dec 11

Feb 12

Apr 12Jun 12

Aug 12Oct

12

Dec 12

Feb 13

Apr 13Jun 13

Aug 13Oct

13

Dec 13

Feb 14

Apr 14

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

Darden Restaurant Olive Garden Comps &

Traffic

TrafficComps

Olive Garden’s competitive moat is drying up

Olive Garden is still the premier Italian dining experience, with over 800 locations, but it’s spawned legions of copycats:

• Bloomin’ Brands (Nasdaq: BLMN) has 241 Carrabba’s Italian Grill restaurants

• Brinker International (NYSE: EAT), 45 Maggiano’s Little Italy• Ignite Restaurant Group (NYSE: IRG), 177 Romano’s Macaroni

Grill

That means more similar-style restaurants fighting for shrinking piece of restaurant industry’s pie

Mama mia! Everyone’s into the sauce!

Italian dining theme’s popularity makes it difficult for anyone to grow.

Olive G

arden

Carrab

ba's Ita

lian Grill

Maggia

no's Little

Italy

Romano's M

acaro

ni Grill

-6

-5

-4

-3

-2

-1

0

1

-5.6

-1.8

0.2

-4.1

Calendar Year 2014 Q1 Comps (% Chg.)

Digital improvements are comingDarden promises additional enhancements will help brand renaissance, including a redesigned website:

• National launch of “online To Go,” where orders are placed online for pickup at nearest restaurant

• Can be prepaid online and discount coupons used• Favorite orders can be saved• Orders can be placed days in advance

Will add tabletop tablets just like Chili’s and Applebee’s

The new logo

Updated interiors

Foolish takeaway

• Investors have time to see if changes work.• Management is placing big bet on Olive Garden and track

record isn’t the best.• Darden also faces shareholder revolt over Red Lobster sale.• Although stock trades at about 1x sales, it’s also nearly

33x earnings, a steep premium to rivals and better-run concepts.

• Taking a wait-and-see approach to the fallout over Red Lobster’s sale is the prudent course of action.

Leaked: Apple's next smart device (warning, it may shock you)Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click on the link below!