Darden Restaurants (DRI) Plans Reopening's

Have you been aching for a lunch of soup, salad and breadsticks at your local Olive Garden? If that's the case, then you're in luck; Darden Restaurants (NYSE: DRI) has a plan to open up almost two out of every three of its dining rooms by the end of the month, and it's not just Olive Garden, either; it's all the Darden-owned locations.

Terms and Conditions Apply

Yes, yes, all the standard terms and conditions you'll expect from a setup like this are in place. All the social distancing and reduced capacity and face masks and extra cleaning are in play, though maybe not quite so bad as you think.

In what will likely come as a relief to diners, you will not have to figure out how to eat lasagna through a facemask. You will actually be permitted to not wear a mask while at the table itself. If you get up for some reason, like to go wash your hands for the now-apparently-mandated 20 seconds, then you'll have to put your mask back on. You'll also be asked to, somehow, maintain the socially-distant six feet radius from other customers, a task easier said than done, especially if you've tried to go in or out the double doors at an Olive Garden location.

What a Difference Dine-In Makes

While restaurants were exploring delivery and pickup options as a way to augment earnings, few considered the notion that this might actually be all the business they did. For Darden, it quickly became clear just how important the dining room actually is. The reopening process—which began in some places all the way back on April 27—gave same-store sales a significant boost.

The week ending April 26 saw same-store sales drop 60.1% over the same time the previous year. For the week ended May 17, meanwhile, same-store sales were off just 49%, and that's with only a handful of dining rooms open. Darden's fiscal fourth quarter is still down 47.9%, all told, but a recovery may be on tap as more restaurants can reopen.

Word from Gene Lee, Darden Restaurants CEO, underscores the point, noting that while customers were willing to stay loyal with take-out options during the coronavirus issues, but are more than happy to come back in and eat.

Recovery Already In Progress?

Signs of recovery at Darden Restaurants are plain to see. Not only is it bringing back formerly furloughed hourly employees—not all of them, of course, at least not yet, a point that will likely come back to bite states that are slower to reopen—but also it's completely repaid a $750 million credit facility as of May 5.

The company is still holding a cash balance well on its way to a billion bucks—roughly $700 million at last report—and has expressed confidence in both its cash flow projections and the state of the credit markets, should it need to go back to the well.

Diversification Again Shows Its Value

If you haven't already heard the term “diversification” until you were blue in the face, allow me to contribute one more round toward your cyan-ization. Darden Restaurants' big advantage in this recovering market will be its sheer diversification. It doesn't just own Olive Garden, though the pseudo-Italian mainstay is one of its biggest brands.

With 1,799 total restaurants to its credit—including such brands as Bahama Breeze, Eddie V's, and the oddly-named Yard House—that's going to give it a certain amount of insulation as customers are able to not only return to the dining room, but also pick up their particular favorites. The importance of being able to more visibly return to normal, which includes a night out, can scarcely be overstated. Some might also call that a problem; that's a lot of locations and a lot of overhead to ride herd on, but it's also the potential for several cash flow vectors, which might help some produce enough to subsidize others in the short term, especially for the corporate-owned varieties.

Darden had a lot going for it going into the coronavirus pandemic, and it's likely to have plenty to help it get out from under it as well. Whether it's a range of possible properties to hit, or just a return to the blessed normalcy of soup, salad and breadstick lunch, Darden looks like it's in a good position to make an effective comeback from one of the worst pandemics in a hundred years.