Olive Garden parent's revenue falls 19% as new dining restrictions hit same-store sales
- Darden Restaurants' same-store sales fell 20.6% during its fiscal second quarter.
- The Olive Garden parent fell short of Wall Street's expectations for quarterly revenue but topped earnings estimates.
Darden Restaurants on Friday reported quarterly revenue that fell short of analysts' expectations as another wave of pandemic-related dining restrictions weighed on its same-store sales.
For next quarter, typically its best of the year, the Olive Garden parent expects sales to plunge 30% to 35%. CFO Rick Cardenas said the company doesn't anticipate significant sales improvements until the fiscal fourth quarter of 2021, which ends in May.
Shares of the company were largely unchanged in morning trading.
Here's what the company reported for the quarter ended Nov. 29 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: 73 cents vs. 71 cents expected
- Revenue: $1.66 billion vs. $1.69 billion expected
The company reported fiscal second-quarter net income of $96 million, or 73 cents per share, up from $24.7 million, or 20 cents per share, a year earlier. Analysts surveyed by Refinitiv were expecting earnings of 71 cents per share.
Net sales dropped 19.4% to $1.66 billion, missing expectations of $1.69 billion. Same-store sales across all of its brands fell 20.6% during the quarter. Sales were also impacted by the timing of Thanksgiving, which shifted from its fiscal third quarter to its fiscal second quarter this year.
Olive Garden, the gem of Darden's portfolio, saw its same-store sales fall 19.9%. The chain has focused its marketing on its convenient pickup options and core menu items rather than limited-time promotions that could eat into profit margins. CEO Gene Lee also thanked Taylor Swift for name-dropping Olive Garden in her song "No Body, No Crime" and said the team is "working around the clock" to capitalize on the buzz.
LongHorn Steakhouse, which has seen strong demand for its takeout, reported same-store sales declines of just 11.1%. Darden's fine dining business, which includes The Capital Grille, was hardest hit. The segment's same-store sales plunged 31% in the quarter.
During the previous quarter's earnings call, Lee said Darden needed states to loosen their dining restrictions in order to improve same-store sales. Instead, as new Covid-19 cases surged, governors did the opposite. Roughly a quarter of Darden restaurants had closed their dining rooms by Dec. 13, up from just 8% of its locations in the week ended Nov. 8.
"We've been able to wind down the businesses effectively and switch to off-premise, and we'll be able to wind them back up," Lee told analysts.
In November and December, Darden's combined same-store sales fell sequentially as more states brought back restrictions on in-person dining and temperatures grew colder. After falling just 23.4% in the week ended Nov. 8, same-store sales had declined 36.9% by the week ended Dec. 13.
So far in the fiscal third quarter, Darden's same-store sales have fallen 26% from a year ago.
The company reinstated its program to pay employees whose dining rooms closed, costing Darden $3 million during the quarter.
For its fiscal third quarter, Darden is anticipating net earnings per share from continuing operations of 50 cents to 75 cents. Wall Street was forecasting earnings of $1.34 per share. The company also reiterated its full-year outlook of 35 to 40 net new restaurants and total capital spending of $250 million to $300 million.
Lee said the company is seeing more availability in real estate, but rents have not come down significantly despite permanent closures. Darden is projecting 5% to 15% of restaurants will permanently shutter due to the pandemic.
Darden also announced a few changes to its executive leadership. Cardenas will transition to president and chief operating officer in January and Treasurer Rajesh Vennam will take over as chief financial officer. The board also voted to make Lee chairman, replacing Charles Sonsteby, the former CFO of Brinker International and Michaels Stores.
The company will pay a 37 cent dividend to shareholders on Feb. 1.