Declining restaurant sales spur plans to spin off Red Lobster - The Buffalo News

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Declining restaurant sales spur plans to spin off Red Lobster

Darden Restaurants, owner of the Olive Garden and LongHorn Steakhouse chains, plans to separate its Red Lobster business, halt acquisitions and cut expenses as restaurant sales lose momentum.

Darden, based in Orlando, Fla., said Thursday in a statement that while it expects to execute a tax-free spinoff of Red Lobster to shareholders, the company also may consider selling the business.

Sales at Red Lobster, a seafood chain with 705 locations in the U.S. and Canada, fell 1.9 percent to $2.62 billion in the year through May 26.

Three Red Lobster restaurants are located in the Buffalo Niagara region.

Restaurant chains, including Darden’s Olive Garden and Red Lobster, have been struggling to lure diners lately, as cash-strapped Americans eat out less, prompting Darden to lower its earnings forecast for the current fiscal year.

In October, New York hedge fund Barington Capital Group LP took a stake in Darden and said the company has potential to improve shareholder returns.

The value of Red Lobster “remains an open question,” Sara Senatore, a New York-based analyst at Sanford C. Bernstein & Co., said in a research note.

Spinning off Red Lobster and reducing capital expenditures and other costs in the corporation “could result in only modest changes in performance,” she said.

Darden fell 3.6 percent to $51.02 Thursday, the biggest decline since Sept. 20.

“We view the plan Darden announced today as incomplete and inadequate,” Barington Chief Executive Officer James A. Mitarotonda said in an emailed statement.

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