Darden Restaurants Inc. said coronavirus closures and concerns have led to a 60% decline in same-store sales as of Wednesday, company executives said Thursday.
The Orlando, Fla.-based parent to casual-dining brands such as Olive Garden, LongHorn Steakhouses and others said state and municipal restrictions on dining rooms to stem the spread of the novel coronavirus were impacting sales.
“As of 4 p.m. yesterday, 60% of our restaurants are mandated to-go only, 16% have mandated other capacity constraints and the remaining 24% have no mandates, but we are choosing to operate them at reduced capacity of approximately 50% or practicing social distancing recommended by health officials,” said Ricardo Cardenas, Darden’s chief financial officer, in a third quarter earnings call.
“The shift in business momentum has been swift after announcements from state and local governments limiting restaurant operations,” Cardenas said, adding that Darden's same-restaurant sales were positive 3% in the first week of the fourth quarter but the second week was basically flat and the third week was down almost 21%.
By segment, same-store sales in the week ended March 15 were down 18.7% at Olive Garden, down 15.9% at LongHorn, down 27.7% in Darden’s fine-dining division, which includes Eddie V’s, and down 27.5% in its other concepts.
To deal with the crisis, Cardenas said Darden was suspending its quarterly dividend, reducing its planned capital expenditures and fully drawing down its $750 million credit facility “to further shore up our cash balance, resulting in approximately $1 billion on our balance sheet.”
“Assuming most restaurants have partial operations, such as to-go only, you can assume that for each percentage point decline in sales for the fourth quarter, which is 14 weeks, diluted earnings per share will decline approximately six to eight cents [per share],” Cardenas said.
If Darden were ordered to close its restaurants fully, with no to-go option, Gene Lee, the company CEO, said the company’s cash burn rate would be $40 million to $50 million.
“It's taken us, on average, six to 10 team members in our to-go only restaurants to operate,” Lee explained later. “I think it's been all over the place and every day it's changing dramatically, but I think when I looked at it yesterday our off-premise business was growing about 20% vs. last year. So it's picking up as people change their behaviors.”
Lee, who has expressed skepticism about third-party delivery in the past, said that “everything is on the table” now.
“However, what we're focused on right now is ramping up and using our team members to be able to keep them on our payroll and develop our own delivery capabilities which our teams are ramping very, very quickly,” he told analysts.
Lee, who said he was leading Darden’s “cross-functional crisis team” that was in contact with the Centers for Disease Control and Prevention and other government agencies, said the COVID-19 situation was fast-changing.
“he dynamic of this crisis is changing hourly,” Lee said, “so I don't want to try to predict what is going to happen. All I can do is that we are going to react.
He said he was in contact with governors in the largest states about social distancing and how Darden’s restaurants were safe places.
“We'll continue to have those conversations, but we're not in control of that,” he said. “We will react to what the local government want to do, and we'll do the best job that we can, but I have no way of predicting what's going to happen.”
Lee said he is foregoing his salary during the coronavirus crisis.
“There's going to be some sacrifices that are going to have to be made for the organization,” he said, “and we'll continue to look at that and evaluate that as best as we get a better understanding of what we're really facing and that that changes daily.”
Casual dining remains vital to the U.S. economy, he added.
“I think that the full-service casual-dining business is an important piece of the overall economic engine of the United States,” Lee said. “You look at just the six top chains, we employ over a half a billion people. … I think that we're going to fight as hard as we can to get our share of the off-premise business in this time. And I believe that we'll all come out of it the bigger ones in a strong position.”
For the third quarter ended Feb. 23, Darden’s reported net income of $232.3 million, or $1.89 a share, compared to $223.6 million, or $1.79 a share, in the same period last year. Total sales increased 4.5% to $2.35 billion driven by the addition of 40 net new restaurants and a blended same-restaurant sales increase of 2.3%
Same-restaurant sales by brand included:
- Up 2.1% for Olive Garden with 870 units
- Up 3.9% for LongHorn Steakhouse with 522 units
- Down 1.6% for Cheddar's Scratch Kitchen with 169 units
- Up 1.8% for Yard House with 81 units
- Up 4.2% for The Capital Grille with 60 units
- Up 3.% for Seasons 52 with 45 units
- Down 0.5% for Bahama Breeze with 42 units
- Up 3.9% for Eddie V's with 23 units
Darden has more than 1,800 restaurants systemwide.
Contact Ron Ruggless at [email protected]
Follow him on Twitter: @RonRuggless