Customers arrive at an Olive Garden location in San Antonio, Texas.
Callaghan O’Hare | Bloomberg | Getty Images
Darden Restaurants reported quarterly sales on Friday that fell short of analysts’ expectations as another wave of pandemic food restrictions weighed on sales in the same store.
For the next quarter, usually the best of the year, Olive Garden’s parent company expects sales to decline by 30% to 35%. CFO Rick Cardenas said the company doesn’t expect significant revenue improvements until the fourth quarter of fiscal 2021, which ends in May.
The company’s shares were largely unchanged in morning trading.
The company reported for the quarter ended November 29th, versus Wall Street’s expectations, based on an analyst survey conducted by Refinitiv:
- Earnings per share: 73 cents compared to 71 cents expected
- Revenue: $ 1.66 billion versus $ 1.69 billion expected
The company reported net income of $ 96 million, or 73 cents per share, for the second quarter, compared to $ 24.7 million, or 20 cents per share, a year earlier. Analysts polled by Refinitiv expected earnings of 71 cents per share.
Net sales declined 19.4% to $ 1.66 billion, falling short of expectations of $ 1.69 billion. Sales of all brands in the same store decreased 20.6% in the quarter. Revenue was also impacted by the timing of Thanksgiving, which shifted from the third fiscal quarter to the second fiscal quarter this year.
Olive Garden, the jewel in Dardens portfolio, saw sales drop 19.9% in the same store. The chain has focused its marketing on its convenient pickup options and main menu items, rather than limited-time promotions that could hurt profit margins. CEO Gene Lee also thanked Taylor Swift for the Olive Garden name on her song “No Body, No Crime” and said the team was working “around the clock” to capitalize on the excitement.
LongHorn Steakhouse, which saw strong demand for its take-out, saw sales in the same store decline just 11.1%. Dardens gourmet business, which also includes The Capital Grille, was hit hardest. The segment’s revenue in the same store decreased 31% for the quarter.
During the previous quarter’s earnings call, Lee said Darden needs states to relax their food restrictions in order to improve sales in the same store. Instead, the governors did the opposite when the number of new Covid-19 cases increased. About a quarter of Darden restaurants had their dining rooms closed by December 13, up from just 8% of locations in the week ending November 8.
“We have been able to do business effectively and move off-premise, and we will be able to do it again,” Lee told analysts.
During November and December, combined sales of Darden in the same store declined in turn as more states rolled back restrictions on personal dining and temperatures dropped. After falling just 23.4% for the week ending November 8, sales in the same store were down 36.9% for the week ending December 13.
So far, Darden’s third-quarter sales are down 26% year over year.
The company reintroduced its program to pay employees whose dining rooms were closed, costing Darden $ 3 million in the quarter.
For the third quarter of the financial year, Darden expects earnings per share from continuing operations of 50 to 75 cents. Wall Street forecast earnings of $ 1.34 per share. The company also reiterated its full year guidance of 35-40 net new restaurants and total investments of $ 250-300 million.
Lee said the company is seeing more availability in real estate, but rents have not fallen significantly despite permanent closings. Darden predicts that 5% to 15% of restaurants will close permanently due to the pandemic.
Darden also announced some changes in its management. Cardenas will become President and Chief Operating Officer in January and Treasurer Rajesh Vennam will take over as Chief Financial Officer. The board also voted to appoint Lee as chairman, replacing Charles Elseeby, the former CFO of Brinker International and Michaels Stores.
The company will pay a dividend of 37 cents to shareholders on February 1st.
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