Categories Analysis, Consumer

How much of a hit could Darden (DRI) take from the coronavirus outbreak?

Shares of Darden Restaurants (NYSE: DRI) were down 9% in midday trade on Monday. The stock has fallen 26% since the beginning of the year and 34% in the past one month alone. The casual dining industry is one of the sectors that is expected to take the biggest hit from the ongoing coronavirus situation.

The COVID-19 outbreak has turned into a global pandemic, affecting 109,000 people worldwide, with 540 cases in the US. In the past few days, the newly confirmed cases have almost doubled across Europe, France, Germany and Spain.

As more and more people choose to stay inside due to the outbreak, fine-dining restaurants like Darden could take a significant hit to their traffic. Since Darden has not taken advantage of third-party delivery services, its sales could get impacted by the drop in customers, who are reluctant to dine outside.

Also read: Stock trading halted after sharp falls on coronavirus fears

Over the past two quarters, Darden has seen its sales slow down, which has posed concerns for investors. However, in the second quarter of 2020, blended same restaurant sales increased 2%. The company stated that its same-restaurant sales outpaced the casual dining industry benchmarks. Darden saw same-restaurant sales increases across most of its divisions, with the highest of 6.7% at LongHorn.

Last quarter, same-restaurant sales at Olive Garden were impacted by a 1.2% drop in guest count. LongHorn, on the other hand, saw a 3.2% increase in the guest count. Darden is set to report third quarter 2020 earnings results next week and it remains to be seen how much of a hit the company’s traffic has taken from the outbreak.

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Last quarter, Darden guided for sales growth of 5.3-6.3% and same-restaurant sales growth of 1-2% for fiscal year 2020. Adjusted EPS from continuing operations is expected to be $6.30-6.45.

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