Restaurants

Olive Garden parent swings to a loss as sales plunge 43%

Key Points
  • Darden Restaurants swung to a loss during its fiscal fourth quarter as the coronavirus pandemic weighed on its sales.
  • The company's revenue fell 43%.
  • Across all of its brands, same-store sales fell 47.7%.
An Olive Garden restaurant in Times Square in New York.
Richard Levine | Corbis | Getty Images

Darden Restaurants on Thursday reported that same-store sales were nearly cut in half during the fiscal fourth quarter as dining room closures from the coronavirus pandemic weighed on its revenue.

But the Olive Garden parent expects its business to pick up in the next three months. The company's outlook for next quarter projects total sales to be about 70% from a year earlier.  

"As our industry continues to rebuild, there is significant opportunity to increase market share," CEO Gene Lee said in a statement. "Those executing at the highest level are going to win, and Darden is well positioned to take advantage of the opportunity."

Shares of the company were up 7% in morning trading.

Here's what the company reported for the quarter ended May 31:

  • Loss per share: $1.24, adjusted
  • Revenue: $1.27 billion 

The company reported fiscal fourth-quarter net loss from continuing operations of $479.7 million, or $3.85 per share, compared with earnings of $208.7 million, or $1.67 per share, a year earlier. Darden reported a goodwill impairment charge of $160 million and a trademark impairment charge of $108.8 million.

Excluding those charges and other items, Darden reported losses of $1.24 per share. 

Net sales dropped 43% to $1.27 billion. Across all its brands, same-store sales fell 47.7%.

Analysts were expecting the company to lose $1.65 per share on revenue of $1.27 billion, according to Refinitiv estimates. However, the impact from the Covid-19 crisis makes these estimates difficult to compare with actual earnings. 

Olive Garden, which accounted for more than half of Darden's revenue, saw its same-store sales shrink by 39.2% during the quarter. Its fine dining segment, which includes The Capital Grille and Eddie V's, reported even steeper declines, with its same-store sales plunging 63.1%. 

Lee said the company tested delivering its own food but found it to be inefficient. He reiterated that Darden was not planning on working with third-party delivery providers. As a result, Darden is focusing on curbside pickup to fulfill to-go orders. 

"We believe off-premise will play a bigger role going forward. I'm not so sure that we'll keep these same run rates going forward," Lee told analysts on the earnings conference call.

In Olive Garden restaurants that have reopened dining rooms with limited capacity, takeout orders accounted for about 40% of sales in the first three weeks of its fiscal first quarter.

The company plans to install temporary barriers in about 100 of its dining rooms, including Olive Garden locations, in the coming days to see if they can improve efficiency without sacrificing safety, particularly as higher capacity limits can make keeping 6 feet apart more difficult.

As of Monday, 91% of Darden's locations had reopened their dining rooms with limited capacity. Lee said that the company has not seen any changes in consumer behavior as confirmed Covid-19 cases in some states have spiked in the last week. The U.S. hit its highest single day of new cases on Wednesday, according to a tally by NBC News.

Lee also said Darden ditched its loyalty program test at the end of the fiscal year to streamline its focus during the crisis.

The company is generating positive operating cash flow, as of the week ended June 21. During the first three weeks of the company's fiscal first quarter, same-store sales fell 33.2%. 

For the fiscal first quarter of 2021, the restaurant company expects net earnings per share from continuing operations to turn positive. It is also forecasting earnings before interest, taxes, depreciation and amortization of at least $75 million.

Darden had over $750 million in cash on hand as of Monday and has access to a $750 million credit facility.

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