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Darden (DRI) Rides on Robust Online Sales Amid Dismal Traffic

Zacks Equity Research
·3 min read

Darden Restaurants, Inc. DRI continues to focus on strengthening online ordering facility and various sales boosting initiatives to drive growth. Consequently, the company’s shares have gained 68% in the past six months, compared with the industry’s rally of 31%. However, dismal same-restaurant sales and traffic woes stray. Let’s delve deeper.

Catalysts

During fourth-quarter 2020, the company rolled out online ordering facility for Cheddar's and other brands that did not have this facility earlier. This also included online sales of alcohol for all brands. Further, the company initiated streamlining of order pickup process and payment methods to reduce friction and enhance consumer convenience in the digital platform. Backed by these initiatives, online ordering has increased sharply. In first-quarter fiscal 2021, online sales contributed almost 60% to total off-premise sales. Online sales have tripled form the last year.

In order to boost the performance of the Olive Garden brand, the company implemented a set of initiatives under its Brand Renaissance Plan. These included simplifying kitchen systems, improving sales planning and scheduling, operational excellence to improve guest experience, developing new core menu items, allowing customization and making smarter promotional investments. The revamped restaurants are already generating high same-restaurant sales and returns. Meanwhile, the company is also focusing on technology-driven initiatives like the system-wide rollout of tablets in order to capitalize on the digitization, which has rapidly penetrated the U.S. fast-casual restaurant sector. This initiative has been providing a boost to the company’s sales for the past few quarters.

Darden stated that it has enough liquidity to survive the coronavirus pandemic for some time. As of Aug 31, 2020, the company’s cash balance totaled nearly $655 million.

 

Hurdles to Cross

In first-quarter fiscal 2021, same-restaurant sales declined sharply at all segments due to the pandemic. Same-restaurant sales at Olive Garden, Fine Dining, LongHorn Steakhouse and Other Business declined 28.2%, 39.1%, 18.1% and 39%, respectively. Moreover, total sales also declined 28.4% from the prior-year quarter’s levels due to negative blended same-restaurant sales of 29%.

The coronavirus pandemic is likely to hurt the company’s results in the coming quarters. Due to the social distancing protocol, traffic in second-quarter fiscal 2020 is likely to remain dismal. This, in turn, will negatively impact the company’s earnings and revenues.

Darden currently carries a Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks in the same space include Brinker International, Inc. EAT, Del Taco Restaurants, Inc. TACO and BJ's Restaurants, Inc. BJRI. Brinker and Del Taco sport a Zacks Rank #1 (Strong Buy), while BJ's Restaurants carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank  stocks here.

Brinker has a trailing four-quarter earnings surprise of 52.7%, on average.

Del Taco’s 2021 earnings are expected to surge 55%.

BJ's Restaurants has a three-five year earnings per share growth rate of 15%.

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BJs Restaurants, Inc. (BJRI) : Free Stock Analysis Report
 
Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report
 
Brinker International, Inc. (EAT) : Free Stock Analysis Report
 
Del Taco Restaurants, Inc. (TACO) : Free Stock Analysis Report
 
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Zacks Investment Research