Orlando Sentinel – ‘A commanding position to survive.’ Darden Restaurants raises money and cuts cash loss during coronavirus

By Austin Fuller, Orlando Sentinel

4/21/2020

Orlando-based Darden Restaurants is raising up to $526.5 million during the coronavirus pandemic through a new offering of shares of its common stock.

An Olive Garden employee brings a takeout order to a customer at the Orlando Fashion Square location in Orlando, Fla., Friday March 20, 2020. Darden Restaurants, the parent company of Olive Garden, closed all their dining rooms nationwide as of Friday, but will continue to serve take-out at the same time Florida Governor Ron DeSantis all restaurant dining rooms closed in the state in response to the coronavirus pandemic.

The owner of Olive Garden and LongHorn Steakhouse announced the underwritten public offering, expected to close Thursday, of 7,826,087 shares Monday at a price of $58.50 per share. The company is also giving the underwriters an option to buy up to another 1,173,913 shares, it said in a news release.

The move creates additional cash, but ran the risk of upsetting their existing common stockholders as it could have diluted their shares, restaurant analyst John Gordon said. However, the company’s stock price was up nearly 2.5% Tuesday at close to $63.32.

“The market has voted on this, and they’re saying that ‘we’re not really concerned,’” Gordon said.

The company’s ongoing, weekly cash loss is about $20 million, based on how it performed over the last two weeks. That number is an improvement from an April 7 update when it was at about $25 million.

Darden — which also owns Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze and Eddie V’s — has already added additional cash by entering into a $270 million term loan credit agreement to supplement a $750 million credit facility.

This week’s offering further strengthened the company’s balance sheet, CFO Rick Cardenas said in a statement Tuesday.

“This will enable us to get back to delivering sustained, long-term shareholder returns,” Cardenas said. “It was a successful offering with strong demand from current and new shareholders, and we are pleased with the results.”

Given the amount of money Darden has and its public offering, the company should be suited for at least well over a year, Gordon said. But he added reopening restaurants will cost money and they won’t be instantly profitable.

“Darden is in a commanding position to survive,” Gordon said.

Same-restaurant sales across the company were down 60% for the week that ended April 19, 65.2% for the week ending April 12, 71.2% for the week ending April 5, 74.9% for the week ending March 29 and 75.2% for the week ending March 22.

“As they are able to get more and more to-go business into Olive Garden and into LongHorn, to a lesser degree, then they’re able to generate some additional revenue for those stores,” Gordon said.

Darden, which has closed its more than 1,800 dining rooms and transitioned to takeout, has also furloughed 20% of about 1,000 people at its Orlando headquarters.

CEO Gene Lee is forgoing his $1 million annual salary and senior executives are also taking a 50% pay reduction. The company also initiated pay cuts on a sliding scale for its remaining corporate staffers.

As for its hourly workers, Darden previously rolled out an emergency pay program for those losing work during the pandemic and a new sick leave policy.

Contact Austin Fuller at afuller@orlandosentinel.com or 407-420-5664; Twitter @afullerreporter

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