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Darden Restaurants Inc. says there has been a sharp decline in sales in the first weeks of the fourth quarter due to the coronavirus epidemic, with same-restaurant sales for the current week plummeting 60%.
In the first week of the quarter, same-restaurant sales were up 3%, according to Eugene Lee, chief executive of the restaurant company, speaking on the company’s fiscal third-quarter earnings call.
In the second, the result was flat. By the third week, same-restaurant sales were down 20.6%.
For the third fiscal week ending March 15, Olive Garden was down 18.7%, Longhorn Steakhouse was down 15.9% and fine dining, which includes The Capital Grille, was down 27.7%.
For the third quarter, Darden Restaurants DRI, -8.04% reported a same-restaurant sales increase of 2.1% at Olive Garden, a 3.9% increase at Longhorn Steakhouse and a 4.2% rise at The Capital Grille.
Darden announced on Friday that any dining rooms that remain open across its portfolio will shut at the close of business today, though online ordering and takeaway will be available.
“Each one of our brands has pivoted to enhance their to-go offering,” Lee wrote in a memo to staff that was sent to MarketWatch.
The memo also says that an emergency pay program will be available to hourly workers, “though it will not be enough to make everyone whole.”
Lee said on the call that it takes an average of six-to-10 workers for the to-go restaurants to operate. The company has 185,000 workers in more than 1,800 restaurants across North America.
“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 cents to eight cents,” said Ricardo Cardenas, chief financial officer at Darden, on the earnings call, according to a FactSet transcript.
The FactSet fiscal fourth-quarter consensus is for a loss of $1.17 per share, down from a profit of $1.76 per share the previous year. And the FactSet sales outlook of $1.58 billion implies a decline of 29%.
Darden has suspended its dividend due to the dine-in seating restrictions imposed by the coronavirus outbreak, and the company is withdrawing its fiscal 2020 outlook.
Darden has also drawn upon its full $750 million credit facility and has $1 billion cash on hand.
With no sales at all, the company said its “cash burn rate” is $40 million to $50 million per week.
On March 18, Lee said the company’s off-premise business was up 20% year-over-year.
“So it’s picking up as people change their behaviors,” Lee said on the call.
SunTrust Robinson Humphrey calculates that it would take 21 weeks to 27 weeks for Darden to become insolvent.
“We view that a very positive, given the current same-restaurant sales run rate of -60.0%,” analysts led by Jake Bartlett wrote.
“While the duration of the Covid-19 outbreak in the US is difficult to judge, management is hearing that the peak could be late-May, early June. In the worst case scenario, we also believe that lenders and/or the government help would keep Darden solvent, given that it is ‘too big to fail’ (the top six U.S. full-service chains employ ~500k people).”
Lee participated in a phone call with President Trump earlier this week. The National Retail Federation and the International Foodservice Distributors Association has asked the federal government to step in with a relief package.
Read: Small businesses could crumble in mere weeks as coronavirus pandemic exacts toll
SunTrust maintained its buy stock rating for Darden, but slashed its price target to $70 from $139.
“Assessment of capital position and liquidity profile provides confidence Darden can manage through severely depressed sales and closures (including two-plus quarters all stores closed), with additional flexibility possible,” wrote UBS analysts led by Dennis Geiger.
“With much uncertainty and near-term headwinds already priced in, we think shares are positioned for significant upside over time with indications of a return to normalcy.”
Darden stock is down 9.5% in Friday trading, and down 64.6% over the past year. The S&P 500 index SPX, -4.34% has fallen 16.2% for the last 12 months.
UBS rates Darden stock buy but cut its price target to $75 from $133.
