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Why Darden Restaurants Stock Tumbled 30.5% in the First Half of 2020

By Rich Duprey – Jul 6, 2020 at 2:54PM

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The COVID-19 pandemic wreaked havoc on the restaurant industry, which operated on a takeout-only basis.

What happened

Shares of Darden Restaurants (DRI -2.32%) were down 30.5% over the first six months of 2020, according to data from S&P Global Market Intelligence, versus a 3% loss for the S&P 500 index

Considering all of its Olive Garden and LongHorn Steakhouse restaurants were ordered closed except for takeout during the coronavirus pandemic, it's not a surprising outcome.

Friends eating out at a restaurant

Image source: Getty Images.

So what

Unlike a number of other casual dining restaurants, Darden's restaurants had developed a significant off-premise business well before the COVID-19 outbreak. Darden saw the number of carryout orders triple when its dining rooms were ordered closed. Now it is being allowed to reopen its restaurants.

While LongHorn Steakhouse comps fell by 45% in its fiscal fourth quarter, where locations had at least some sit-down dining capacity, they saw comps decline by just low teen percentage rates. Comps fell 39% at Olive Garden, but even where people are dining in again, they're still down by low- to mid-20% rates.

Now what

Darden faces the dual problem of limited seating allowances and social distancing rules. The restaurant operator says it's not as much of an issue in its LongHorn Steakhouse restaurants because they are essentially big rooms that can be rearranged as needed, but it is much more difficult at Olive Garden because its interior design is made for closer seating.

It's trialing installing Plexiglas barriers to meet the six-foot distance requirements, but Darden says the twin capacity constraints mean it and other restaurants may not post positive same store sales for a long time to come.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Darden Restaurants, Inc. Stock Quote
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