Parent Company of Olive Garden Opens 50% of its Restaurant

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Parent Company of Olive Garden Opens 50% of its Restaurant

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What happened?

Shares of Darden Restaurants(NYSE: DRI) have been trading higher following a press release by the company stating that it plans to open more than half of its restaurants. An analyst at Cowen group also raised the target price from $83 from $63.

So what?

Darden is a restaurant company featuring a portfolio of differentiated brands that include Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze and Eddie V’s.

The company opened nearly half of its dining rooms after the ease on restrictions across the country.

Darden restaurants have opened 49% of its restaurants as of May 17 and they plan to open more than 65% by the end of May.

The restaurant owner had switched from dining to takeouts, in march 2020, to comply with the restrictions. Later it started opening its restaurants on April 27, with a limit on the seating up to 25% to 50% in accordance with the local and state regulations.

Darden asks diners to make reservations in advance to cut down on contact, and requests they wear masks except when actually seated and eating. The company has adopted necessary measures in an effort to prevent the spread of the virus at its newly opened dining rooms. A strict regimen is in force at all locations which involves regular cleaning and disinfection. In addition to this, employees receive regular health checks and temperature scans upon their arrival on the job in the morning.

The company’s same-restaurant sales declined by 47.9% in the period. Moreover, for the weeks ended Apr 26, May 3, May 10 and May 17, same-restaurant sales were down 60.1%, 57.7%, 50.8%, and 49%, respectively. For the first eight weeks of the fourth quarter, same-restaurant sales were up 3.0% and down 0.2%, 20.6%, 75.2%, 74.9%, 71.2%, 65.2% and 60%, respectively.

For the fourth quarter to date through May 17, same-restaurant sales were down 39.4%, 45.8%, 63.1% and 65.5% at Olive Garden, LongHorn Steakhouse, Fine Dining and Other Business, respectively.

Now what?

“As we continue to reopen our dining rooms, we remain dedicated to providing a safe environment for our team members and guests,” said CEO Gene Lee. “Early signs show that our loyal guests are grateful for the opportunity to dine-in with us, and they appreciate the added safety measures we have implemented. At the same time, our To Go business remains strong. I am pleased that we are able to return some team members from furlough to support these phased openings, and we look forward to safely serving more guests as more communities begin to reopen.”

Rich Jeffers, spokesperson for Darden said the headquarters will gradually reopen and is expected to be fully operational on June 1. “Employees there will wear masks in common areas, be socially distanced throughout the headquarters, and encouraged to take their temperatures at home”, Jeffers said.

Based on the week ending May 17 results, the Company’s ongoing weekly cash burn rate has improved to less than $10 million including capital expenditures. Given the increased confidence in our cash flow projections and stabilization in the credit markets, the Company fully repaid its $750 million credit facility on May 5, 2020.  With approximately $700 million of cash on hand as of May 17, the Company is well-positioned for the near term while retaining the financial flexibility to fully access its $750 million credit facility should capital requirements present.  Including cash available through the credit facility and cash on hand, we have access to over $1.4 billion of liquidity.

The restaurant has attracted some positive attention from analysts. Brett Levy of MKM Partners gave it a buy rating and a $90 price target.

The Cowen research note predicts Darden Restaurants will scrape out only slight improvements during its fiscal fourth quarter. For instance, Charles asserts that same-store sales, instead of falling 50%, will drop 149% instead. He also said, “We continue to assume a 50% decremental margin on lost sales” for fiscal Q1 2021.

Still, Charles raised Darden’s price target from $63 per share to $83 per share.

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