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Why Darden Restaurants Stock Was Up 14% in August

By Jon Quast – Sep 4, 2020 at 1:37PM

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Investors are hopeful casual-dining restaurant traffic can return to normal someday.

What happened

Shares of casual-dining restaurant company Darden Restaurants (DRI -2.44%) went up 14.2% in August, according to data provided by S&P Global Market Intelligence. The company didn't have news to report and analysts were split over whether this was a good stock to buy. Nevertheless, Darden stock rose with the market and then got a big boost when Abbot Laboratories announced its new coronavirus test.

Although Darden stock is rising, a recent filing with the Securities and Exchange Commission (SEC) is a reminder for investors that the company isn't back to normal yet.

DRI Chart

DRI data by YCharts

So what

Restaurant traffic, especially casual dining, was decimated by the COVID-19 pandemic. As one of the largest restaurant companies in the world, Darden likewise suffered. Traffic hasn't returned to normal with many dining rooms still not at full operating capacity. But maybe that's about to change. Abbott Labs' new coronavirus test is cheaper and faster than anything to date, giving investors optimism these could be used to help the restaurant industry recover.

An Aug. 31 SEC filing from Darden is a reminder of how pressing this need is. The company is offering early retirement to 250 corporate employees and laying off even more. The layoffs include executive vice president and COO David C. George, whose corporate roles are being eliminated entirely. The stated reason for this restructuring was to align corporate expenses with the ongoing sales reality.

A dollar bill is folded into the shape of an upward pointing arrow.

Image source: Getty Images.

Now what

The restructuring will cost Darden $35 million now, not including undisclosed non-cash expenses. After the one-time hit, it should save the company $25 million to $30 million annually -- which would be a good thing. But make no mistake, Darden wouldn't have restructured its business like this if restaurant traffic were already back to pre-COVID-19 levels.

While Darden stock is still down about 30% from 52-week highs, I'd stop short of calling this a value stock at the moment. The company reports results for the first quarter of its fiscal 2021 on Sept. 24. I'd at least wait to see if the business has returned to modest growth and the dividend has been reinstated before thinking about investing.

Jon Quast 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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Stocks Mentioned

Darden Restaurants, Inc. Stock Quote
Darden Restaurants, Inc.
$122.39 (-2.44%) $-3.06
Abbott Laboratories Stock Quote
Abbott Laboratories
$100.68 (-0.39%) $0.39

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