Even though Darden Restaurants, Inc. (NYSE:DRI) started performing better than it did in the past, its top management issues are far from over. These concerns led to the stock to dip Tuesday despite the strong third quarter earnings the company reported.
Darden – which owns popular restaurant chains like Olive Garden and Longhorn Steakhouse – said Tuesday it earned third quarter revenues of $1.85 billion, slightly ahead of analysts’ expectations of $1.84 billion. Third quarter adjusted earnings per share (EPS) of $1.21, however, comfortably beat the Street’s expectation of $1.19. Darden said same store sales – which gauge organic sales growth at restaurants open for more than a year – jumped 6.2% compared to the same quarter last year.
For the full fiscal year 2016, the company said it expects adjusted EPS to fall within a $3.48-3.52 range, ahead of analysts’ expectations of $3.49. Full-year same store sales year are projected to increase by 3- 3.5% year-on-year.
Still , Darden shares closed down 3.77% at $64.80 Tuesday. The company said its Chairman of the 10-member board, Jeffrey Smith, has resigned from his post, effective immediately. He will be replaced by Charles Sonsteby, who most recently served as the chief financial officer and chief administrative officer of Michaels – a retailer that deals with artwork and other home décor items.
Mr. Smith, also the spearhead of the activist investment firm Starboard Value, led the battle against the company’s former top management to oust the entire board in 2014 – the key turning point for Darden. Starboard Value has been at the heart of almost all major strategic and managerial decisions at Darden over the past two years. As a result, from consistently missing the Street’s earnings estimates, Darden has gone on to beat analysts’ expectations for the seventh consecutive quarter now.
With the departure of Jeffrey Smith, however, investors are expressing concerns about the company’s future prospects. Already, high input costs and a broad calmness in the retail macro environment has been affecting the restaurant sector at large.
Mr. Smith has said he is moving on to some other projects. Analysts speculate he could be go to Yahoo, where Starboard Value is also pushing to oust the entire board to boost the company’s overall performance.