What happened

Stocks were gaining for the second day in a row today, adding to Monday's rally as investors continue to become optimistic on signs that the coronavirus may be peaking in hot spots such as Italy, Spain, and New York. A decline in new cases would mark the first significant step to reopening at least parts of the economy, though it's still unclear how that would take place.

Not surprisingly, then, stocks that would most benefit from an end to the stay-at-home policies in effect across the country were among today's biggest winners, and that included several casual dining chains. As of 10:47 p.m. EDT, Olive Garden-parent Darden Restaurants (DRI -0.66%) was up 11.6%, Chili's owner Brinker International (EAT -0.28%) had gained 7.9%, BJ's Restaurants (BJRI -0.11%) was 5.7% higher, Bloomin' Brands (BLMN 0.26%) had increased 4.9%, Dave & Buster's (PLAY -3.33%) was up 6%. At the same time, the S&P 500 was up 1.4%.

A group of people sitting around a restaurant table eating pizza

Image source: Getty Images.

So what

Darden Restaurants appeared to pace the sector's gains today as the company provided a COVID-19 business update. Management said that to-go sales had doubled at Olive Garden and tripled at Longhorn Steakhouse since it closed its dining rooms, and the company had made adjustments to conserve cash such as pulling back on marketing and delaying new restaurant openings.

It also said it had more than $1 billion in liquidity after it borrowed $270 million under a term loan. At its current cash burn rate of about $25,000 per week, the company has enough cash to survive about three quarters with its dining rooms closed without further borrowing. Comparable sales have plunged in recent weeks, falling by more than 60%, but Olive Garden comps have improved modestly over the last two weeks, which may be a sign that customers are adjusting to ordering takeout. While the report wasn't all good news, it was enough to reassure investors, especially as the stock is still down more than 50% since the coronavirus sell-off began.  

Chili's parent Brinker issued a similar update last Thursday, saying that off-premise sales, which now make up the entire business, have more than doubled from a year ago. However, total company sales are still down 65% to 70% from a year ago as the company has lost its dine-in business. Like Darden, the company has cut back on executive compensation and capital expenditures, and it said it had $800 million available under a revolving credit facility. Brinker management also said it had reduced cash burn to less than $10 million a week, and the stock has been on the rise since the announcement.  

BJ's Restaurants gave its business update two weeks ago, saying it was well capitalized after drawing down its $250 million line of credit and $95 million in cash on its balance sheet. The company had suspended dividends and share buybacks, as well as capital expenditures. BJ's weekly cash burn is approximately $5 million.   

Outback Steakhouse-parent Bloomin' Brands said two weeks ago that it was drawing down $400 million from its credit facility, and Dave & Buster's said it had closed all 137 of its locations and significantly reduced operating expenses and capital expenditures. The chain has also explored selling a stake to private-equity firms, a sign of its weak cash position. 

Now what 

Investors may also be encouraged by news that the federal government is considering another rescue package, potentially worth $1 trillion or $1.5 trillion, and increasing funding for small businesses through the Small Business Administration.

Both items would be a boon to the restaurant chains above as they are counting on the government to help employees who are furloughed, and providing a backstop for loans if needed. Restaurant investors should expect the sector to continue to move on broader sentiment and on coronavirus-related news as they looks for signs of the economy reopening.