Olive Garden parent's quarterly revenue falls by 28% as pandemic weighs on sales
- Darden Restaurants' net sales fell by 28% during the quarter ended Aug. 30.
- The company's fine dining business is under the most pressure, with same-store sales shrinking by 39%.
- Next quarter, Darden expects net sales to be down just 18%.
Darden Restaurants on Thursday reported that its revenue fell by more than 28% in its fiscal first quarter as the company's business slowly recovers from the coronavirus pandemic.
But it said it expects net sales to be down just 18% in the next quarter.
Shares of the company rose nearly 5% in morning trading.
Here's what the company reported for the quarter ended Aug. 30 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: 28 cents vs. 5 cents expected
- Revenue: $1.53 billion vs. $1.56 billion expected
The Olive Garden parent reported fiscal first-quarter net income of $36.1 million, or 28 cents per share, down from $170.6 million, or $1.37 cents per share, a year earlier. Analysts surveyed by Refinitiv were expecting earnings of 5 cents per share.
Excluding losses from discontinued operations, Darden earned $37.3 million in the latest period, compared with $171.8 million a year ago.
Net sales dropped 28.4% to $1.53 billion, missing expectations of $1.56 billion.
In response to the crisis, Darden said it has streamlined its menus, adjusted its cost structure and shrank its marketing spending by more than $40 million.
Same-store sales across all of its restaurant brands plunged 29% during the quarter. The cancellation of business travel and conventions has hurt its weekday business, according to CEO Gene Lee.
The company's fine dining business is under the most pressure, with same-store sales shrinking by 39%. The Capital Grille's three New York restaurants are losing $3 million every week.
Olive Garden, which accounts for roughly half of Darden's revenue, saw its same-store sales decline by 28%. Its off-premise sales more than doubled and made up about 45% of the Italian chain's total sales. But the chain's best restaurant, located in New York City's Times Square, has been doing sales of only $2,500 every day, well below normal levels, Lee said.
LongHorn Steakhouse's same-store sales fell by just 18%. In Georgia and Mississippi, its same-store sales were positive for the quarter.
Lee said the company needs states to loosen their capacity restrictions for dining rooms in order to improve same-store sales.
California, which rolled back the reopening of dining rooms, is home to 100 Olive Garden restaurants. However, social distancing measures will still constrain the number of customers inside its restaurants. And while Darden has taken advantage of expanded outdoor dining, Lee said its outdoor capacity in Florida has been virtually nonexistent because of six weeks of rain. As temperatures chill, the company expects it will lose outdoor diners in the North but regain them in the Sunshine State.
Darden expects its fiscal second-quarter sales to decline only 18% compared with the same time last year. The company is also forecasting diluted net earnings per share from continuing operations in a range of 65 cents to 75 cents.
"We see a pretty resilient consumer out there," Lee told analysts on the conference call. "I know that it's hard to imagine for you guys up in New York, but that's not what we see in the rest of the country."
Darden also said it fully repaid its $270 million term loan on Aug. 10, citing its "steadily improving cash flows" in the quarter and greater confidence in its cash flow projections. It is also reinstating its dividend and will pay out 30 cents per share for this quarter's results. The company has $655 million of cash on hand.