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Why Darden Restaurants Stock Was Gaining Today

By Jeremy Bowman – Sep 24, 2020 at 4:15PM

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Better-than-expected bottom-line results helped boost the casual-dining chain today.

What happened

Shares of Darden Restaurants (DRI -0.12%) were climbing today after the Olive Garden parent beat bottom-line estimates in its first-quarter earnings report, offered promising guidance for the current quarter, and reinstated its dividend, all signs the company was rebounding from the depths of the coronavirus crisis.

As a result, the stock was up 8.7% as of 3:21 p.m. EDT.

The exterior of an Olive Garden restaurant.

Image source: Darden Restaurants.

So what

Darden continues to struggle during the pandemic as comparable sales in the quarter were down 29%, driving a revenue decline of 28.4% to $1.53 billion, which missed estimates at $1.56 billion.  

Despite pandemic-related headwinds, the restaurant chain still managed to deliver a profit for the quarter, reporting adjusted earnings per share of $0.56, which excludes $0.28 per share of restructuring costs. That was down substantially from the $1.38 in EPS it reported in the year-ago quarter, but easily beat analyst expectations of just $0.05. It also repaid a $270 million term loan on Aug. 10, showing its balance sheet and liquidity are improving.

LongHorn Steakhouse was the company's top-performing chain in the quarter as comparable sales there declined 18.1% in the quarter, compared to a 28.2% slide at Olive Garden. Management also noted that only 68% of its restaurants had at least limited dining room capacity at the start of the first quarter, compared to 91% at the start of the second quarter, favoring the company's continuing recovery.

CEO Gene Lee said in a statement, "The actions we continued to take in response to COVID-19, which include being laser-focused on execution and strengthening our business model, resulted in significantly improved first quarter performance that exceeded expectations."

Now what

Investors were also encouraged by the company's second-quarter guidance as management expects revenue to decline 18% in the current period, compared to analyst expectations of a 13.7% decline. However, it sees earnings per share from continuing operations of $0.65 to $0.75, which was well ahead of estimates at $0.35.

Finally, the company also said it would begin paying a dividend again, calling for a divided of $0.30 per share payable on Nov. 2. That's significantly below its pre-pandemic quarterly dividend of $0.88, but it signals a commitment to income investors nonetheless.

Overall, Darden showed it was moving in the right direction in its recovery, even though performance will likely be impaired for the duration of the pandemic, and that was enough to please investors.

Jeremy Bowman 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.

Stocks Mentioned

Darden Restaurants Stock Quote
Darden Restaurants
$145.48 (-0.12%) $0.17

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