Can Darden Restaurants Survive Another COVID-19 Lockdown?

Unlike the retail space, restaurants haven't seen many COVID-19-related bankruptcies, undoubtedly because takeout and delivery served as a lifeline for the industry during the pandemic, whereas most retailers were completely shut down for periods of time.

Darden Restaurants (NYSE: DRI) had a special advantage over many of its casual dining rivals as it had an established and robust off-premise business in place when the pandemic hit. That doesn't mean the owner of Olive Garden and Longhorn Steakhouse wasn't hurt -- carryout can't offset the hit it took from closed dining rooms, and sales still dropped 43% year over year last quarter. However, it allowed the restaurant to continue generating revenue.

Shares of Darden are down 24% year to date, though they've rallied from the stock market's low point, more than tripling in value. But if another coronavirus wave sweeps over the country and states lock down again, could the casual dining leader withstand the reverberations again?

Family unbagging an Olive Garden takeout order

Image source: Olive Garden.

New social order

Restaurants will struggle even if dining rooms aren't closed. Social distancing rules and dining room capacity limitations will negatively affect how restaurants operate, meaning they may not be able to post comparable sales growth for a long time to come.

Because of Darden's experience in the takeout business, and the investments it's made in digital ordering, the chain should make it through any new forced closures.

Last quarter consumers ordering online at Olive Garden grew by more than 300% compared to the year-ago period, accounting for 58% of its to-go sales, while Longhorn, which started from a smaller base, saw online ordering surge 400%, representing 49% of the chain's gross sales.

Darden Restaurants also had access to over $1.5 billion in liquidity at the end of its fiscal fourth quarter, giving it plenty of cushion to weather another storm.

DRI Chart

DRI data by YCharts

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Rich Duprey 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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