A take-out order from a Darden Restaurants Inc. Olive Garden.
Daniel Acker | Bloomberg | Getty Images
Darden Restaurants on Thursday reported quarterly earnings and revenue that topped analysts’ expectations, but the Olive Garden parent also withdrew its fiscal 2020 outlook and suspended its quarterly dividend, citing the coronavirus crisis.
After the earnings report, shares swung wildly, trading down as much as 12% and up as much as 12%. Recently shares were down 1%.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: $1.89 vs. $1.88 expected
- Revenue: $2.35 billion vs. $2.32 billion expected
Olive Garden’s parent reported fiscal third-quarter net income of $232.3 million, or $1.89 per share, up from $223.6 million, or $1.79 per share, a year earlier. Analysts surveyed by Refinitiv were expecting earnings per share of $1.88.
Net sales rose 4.5% to $2.35 billion, topping expectations of $2.32 billion. Across its eight brands, which include The Capital Grille and LongHorn Steakhouse, same-store sales grew by 2.3% during its fiscal third quarter.
Olive Garden, which accounts for nearly half of Darden’s revenue, reported same-store sales growth of 2.1%, driven by higher prices. LongHorn Steakhouse same-store sales increased by 3.9%, while The Capital Grille’s same-store sales rose by 4.2%. Cheddar’s Scratch Kitchen was once again the laggard of Darden’s portfolio, reporting same-store sales declines of 1.6%.
The company’s same-store sales have declined 5.9% in the fourth quarter, as of Sunday. About 60% of Darden restaurants are to-go only as mandated by local and state governments. Executives said that if most restaurants are partially operating, for each percentage point decline in sales for the fourth quarter, diluted earnings per share will fall by 6 cents to 8 cents.
“We think a full close is unlikely,” CFO Rick Cardenas told analysts on the conference call.
On average, the company needs about six to 10 employees in restaurants with closed dining rooms. Its restaurants will offer delivery with its own drivers to keep employees working.
The company has “dramatically” reduced its advertising spending, according to Cardenas. Remaining advertising will focus on its to-go options, particularly for Olive Garden and LongHorn Steakhouse.
Darden has fully drawn down its $750 million credit facility “out of an abundance of caution.” Cardenas said the company has not broken any of its covenants.
“With the drawdown of our revolver, and cash on the balance sheet, we will have approximately $1 billion in cash on hand,” Cardenas said in a statement. “We believe this positions us well to deal with potential near term volatility under the current market conditions.”
Executives said the situation is covered by its business interruption insurance policy, which has a coverage limit of $10 million.
CEO Gene Lee said the company has holding discussions with the White House and members of Congress about a plan to keep workers on its payroll and use government money to pay employees. Lee is forgoing his own salary.
Darden recently announced it would offer paid sick leave to all hourly employees in response to the coronavirus outbreak.