Olive Garden parent Darden Restaurants says same restaurant sales fell 60% for current week due to coronavirus
Darden Restaurants Inc. says there was a sharp drop in sales in the first weeks of the fourth quarter due to the coronavirus outbreak, with sales at the same restaurants for the current week falling 60%.
In the first week of the quarter, sales for the same restaurant were up 3%, according to Eugene Lee, chief executive of the restaurant company, during the call for the company’s third quarter financial results.
In the second, the result was flat. In the third week, sales for the same restaurant were down 20.6%.
For the third fiscal week ending March 15, Olive Garden was down 18.7%, Longhorn Steakhouse was down 15.9%, and fine dining, which includes The Capital Grille, was down 27.7% .
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For the third quarter, Darden Restaurants DRI,
reported a 2.1% increase in same restaurant sales at Olive Garden, a 3.9% increase at Longhorn Steakhouse, and a 4.2% increase at The Capital Grille.
Darden announced Friday that any dining rooms that remain open in its portfolio will close when business closes, although online ordering and take-out are available.
“Each of our brands has pivoted to improve their take-out offering,” Lee wrote in a staff memo that was sent to MarketWatch.
The memo also states that an emergency pay program will be available for hourly workers, “although it won’t be enough to make everyone around the world.”
Lee said on the call that it takes an average of six to ten workers for takeout restaurants to operate. The company has 185,000 employees in more than 1,800 restaurants across North America.
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“Assuming that most restaurants have partial operations such as take-out only, you can assume that for every percentage point of sales decline for the fourth quarter, which is 14 weeks, diluted earnings per share will go down. about six hundred to eight hundred, “Ricardo Cardenas, CFO of Darden, said during the earnings call, according to a FactSet transcript.
FactSet consensus in the fiscal fourth quarter is forecasting a loss of $ 1.17 per share, down from earnings of $ 1.76 per share a year earlier. And FactSet’s sales outlook of $ 1.58 billion implies a decline of 29%.
Darden has suspended its dividend due to seating restrictions imposed by the coronavirus outbreak, and the company is withdrawing its outlook for fiscal 2020.
Darden has also used its entire $ 750 million credit facility and has $ 1 billion in cash.
Without any sales, the company said its “cash consumption rate” was $ 40 million to $ 50 million per week.
On March 18, Lee said the company’s off-site activities were up 20% year-over-year.
“So it’s accelerating as people change their behavior,” Lee said on the call.
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As of Monday, Olive Garden began offering its “Buy One, Take One” promotion as a on-the-go option for $ 12.99. The option includes a dish to eat right away, including spaghetti with meat sauce and cheese dumplings, and one that’s prepared, packaged, and refrigerated for later.
SunTrust Robinson Humphrey calculates that it would take 21 weeks to 27 weeks for Darden to become insolvent.
“We consider this to be very positive, given the current sales rate for the same restaurant of -60.0%,” wrote analysts led by Jake Bartlett.
“Although the duration of the Covid-19 epidemic in the United States is difficult to judge, management intends that the peak could be in late May, early June. In the worst-case scenario, we also believe that lenders and / or government aid would keep Darden solvent, given that it is “too big to fail” (America’s six major full-service chains employ around 500,000 people. ). “
Lee participated in a phone call with President Trump earlier this week. The National Retail Federation and the International Foodservice Distributors Association have called on the federal government to step in with a back-up plan.
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SunTrust maintained its stock rating for Darden, but lowered its price target to $ 70 from $ 139.
“Assessing the capital situation and liquidity profile gives confidence that Darden can handle through severely depressed sales and closings (including more than two quarters with all stores closed), with additional flexibility possible,” wrote UBS analysts led by Dennis Geiger.
“With a lot of uncertainty and short-term headwinds already built in, we believe stocks are positioned for a significant upside over time with indications of a return to normal.”
Darden stock is up 2.6% on Monday and down 66% in the past year. The S&P 500 SPX index,
has fallen almost 20% in the past 12 months.
UBS estimates buying Darden shares but lowered its price target to $ 75 from $ 133.