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Darden Reports Lower-than-Expected Losses, Stock Rises

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Today, Darden Restaurants (NYSE:DRI) reported its earnings for the fourth quarter of fiscal 2020. For the quarter, the company reported an adjusted loss of $1.24 per share on revenues of $1.27 billion. Meanwhile, analysts expected the company to report an adjusted loss of $1.65 per share and revenue of $1.26 billion. Darden stock rose in the pre-market hours of trading due to its impressive fourth-quarter performance.

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Darden CEO Gene Lee credited the company’s strategy, scale, and culture for its better-than-expected performance. In a statement, he said, “The full-service restaurant industry plays a vital role in our communities. As our industry continues to rebuild, there is significant opportunity to increase market share. Those executing at the highest level are going to win, and Darden is well positioned to take advantage of the opportunity.”

Darden’s revenue fell over 40%

Darden’s revenue fell 43% from $2.23 billion in the fourth quarter of 2019. The decline of 47.7% in the company’s overall SSSG dragged its revenue down. However, one extra week of operations and the net addition of 19 restaurants in the last four quarters offset some of the declines. The SSSG of Darden’s top two revenue-generating brands, Olive Garden and LongHorn Steakhouse, declined by 39.2% and 45.3%, respectively. Meanwhile, the SSSG of the fine-dining segment, which includes The Capital Grille and Eddie V’s, declined by 63.1%. Collectively, all of the other brands reported a decline of 65.4% in their SSSG.

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Darden reports a loss

For the quarter, Darden’s diluted losses were at $3.85 per share. However, removing special items, the company’s adjusted loss per share came in at $1.24. The special items included non-cash impairments of $2.61, which were related to goodwill and trademark. Meanwhile, the company reported an adjusted EPS of $1.76 in the fourth quarter of fiscal 2019. The sales deleverage from negative SSSG, higher D&A (depreciation and amortization) expenses, and increased interest expenses dragged the company’s EPS down.

Outlook

As the economy started to reopen after the pandemic infused lockdown, Darden provided an update on its restaurant reopening and its SSSG. As of June 22, the company has opened 91% of its dining rooms, which operated in a limited capacity. The company’s overall SSSG for the first quarter as of June 21 stood at a negative 33.2%.

Amid the uncertainty due to the COVID-19 outbreak, Darden’s management only provided guidance for the first quarter. Darden’s management expects its total sales to be 70% of its first-quarter sales in fiscal 2020. The company expects to report an EBITDA of over $75 million. The adjusted EPS will likely be zero with its weighted average shares outstanding at 131 million. In fiscal 2021, the company expects to open 35–40 new restaurants. Management also expects to spend $250 million–$300 million on capital expenditure.

Darden had $750 million of cash at the end of the quarter. Also, the company has access to $750 million of credit facility. Overall, the company has access to $1.5 billion of liquidity.

Darden’s YTD stock performance

Darden has made a significant recovery from its March lows by rising over 170%. Despite the strong recovery, the company is still down 35% for this year as of June 24. The stock has underperformed the broader equity markets and its peers. YTD, the S&P 500 Index has declined by 5.6%, while Starbucks (NASDAQ:SBUX) and McDonald’s (NYSE:MCD) have fallen by 16.25% and 6.7%, respectively.

Read Is McDonald’s a ‘Buy’ at These Levels? to learn more about the company’s growth prospects. Recently, Starbucks partnered with Impossible Foods to introduce a breakfast sandwich. Read Starbucks Partners with Impossible Foods for Breakfast Sandwich to learn more.

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