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Outback chain ousts president

A year after the company CEO exited and still in a slump, the chain scrambles for footing in a soft market.

Published July 18, 2006

With its stock trading near a three-year low and Wall Street chanting for change, OSI Restaurant Partners announced the resignation of Outback Steakhouse president Ben Novello on Monday.

No explanation was given for the departure of Novello, a 49-year-old who managed a single Outback location in 1991 and rose through the Tampa company's ranks to become chain president in January 2004. OSI declined an interview request Monday.

But Novello, who left at the midpoint of a five-year employment contract, sat atop a troubled brand that has caused OSI to suffer same-store sales declines in 11 of the past 12 months, led just four of 20 Wall Street restaurant analysts to judge its stock a "buy" and inspired one of its biggest investors to call it an "aimless brand aggregator" whose assets should be split up. Analysts will get an opportunity to discuss the management change with senior OSI executives next week after the company issues its second-quarter financial report.

"I've got a feeling they've got a lid on this, and we'll hear a lot of speculation from analysts about what it means," said Richard Martin, executive editor of Nation's Restaurant News. OSI's stock rose 8 cents Monday to $32.61 after hitting a three-year low Friday.

Started as a single Tampa restaurant in 1988, Outback grew into a national brand with a catchy TV advertising campaign and a loyal following. Today, there are 931 Outback restaurants worldwide and the parent company has successfully diversified with strong performers such as Carrabba's Italian Grill, Bonefish Grill and the upscale Fleming's Prime Steakhouse and Wine Bar. Restaurants & Institutions recently ranked Outback the 15th largest U.S. restaurant chain by revenues, precisely the sort of firepower that has made OSI the Tampa Bay area's third-biggest public company.

But restaurant analysts say OSI has been slow to address problems that preceded the exit of co-founder Chris Sullivan as CEO in early 2005. Outback remains by far OSI's largest asset and, Martin said, its "biggest risk, if not its biggest opportunity."

Bill Allen, Sullivan's successor as CEO, acknowledged as much last year when he announced that OSI had hired a well-known brand strategist to perform a deep-tissue diagnosis of Outback and said OSI executives would ponder such strategic options as a huge buyback of company stock. Since then, the company has upgraded the bathrooms and back bar area at a number of its Outback locations, launched a much-criticized TV ad campaign, talked about adding healthier entrees to its menu, tested the effect of price cuts in its Midwestern markets, changed its corporate name to OSI and vowed to win back the female diners who appear to have mostly abandoned it.

But analysts like Piper Jaffray's Peter Oakes, who recently wrote that OSI had "not done itself any favors" by delivering stagnant earnings the past few years, continue to speak pessimistically about the company's immediate future.

Key problems are said to include second-rate locations, overpriced entrees, out-of-date decor and, perhaps most critically, the arrival of tough competitors like Texas Roadhouse that are pecking away at its market share and shopworn image. Olive Garden and other "mature" chains are proof that growing older doesn't mean being less popular.

One major investor made its displeasure public last month. Pirate Capital, a Norwalk, Conn., hedge fund sometimes criticized for demanding strategic changes to suit its short-term interests, demanded in a public letter that OSI spin off several of its smaller concepts and stop adding locations to the Outback chain. Pirate pursued a similar tack last year with Tampa's Walter Industries.

Some of Outback's problems may reflect broader economic trends. Scott Hume, Restaurant & Institutions' executive managing editor, said same-store sales figures are soft across the casual-dining sector. Martin, the Nation's Restaurant News editor, said the sector is punished first when gas prices and other costs of living rise.

Novello, who joined OSI in 1991, has kept a low public profile over the years. In 1997 he became a joint venture partner in charge of 13 restaurants in 1997. He was named a vice president of operations in 2002, which put him in charge of about 100 steakhouses. He replaced Paul Avery as Outback brand president on Jan. 1, 2004, when Avery succeeded company co-founder Bob Basham as corporate president. Avery will serve as Novello's interim replacement until a permanent successor is found.

Novello had OSI's fourth-highest salary last year at $400,000 and earned a $390,000 bonus. As part of a prearranged plan last month, he exercised options to buy 45,000 shares of OSI stock at $21.44 each and sold them for an average of more than $45 per share. In Monday's news release, Avery said he hoped Novello would remain with the company "in some capacity."

In other OSI news, former subsidiary Paul Lee's Chinese Kitchen apparently ceased doing business. The Arizona Republic reported that the fourth and last Paul Lee's closed without warning this month. OSI sold its 50 percent stake in the fledgling chain for a loss last year.

Times staff research Caryn Baird contributed to this report. Scott Barancik can be reached at or (727) 893-8751.

[Last modified July 18, 2006, 00:52:19]

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