Darden stock price surges 30% as restaurant chain slashes executive pay

Darden stock price surges 30% as restaurant chain slashes executive pay

  • Same-store sales fell almost 35% in the current quarter, with a 71% crash in sales recorded last week
  • Darden took a $270 million loan to increase its liquidity, slashed executive pay by 50%, and furloughed staff
  • Shares of the company trade more than 12% higher today, totaling gains to nearly 32% in less than two days

Shares of Darden Restaurants (NYSE:DRI) have surged more than 30% since the weekend after the restaurant chain announced it is furloughing a portion of its support center employees and slashing executive pay amid the COVID-19 outbreak crisis.

Fundamental analysis: Same-store sales crash

Darden announced it has been forced to take a new $270 million loan to provide further liquidity as the same-store sales slumped 71% across all of its chains, in a week ended April 05. For the entire fourth-quarter, the same-store sales fell nearly 35%.

The loan agreement also includes an option to allow Darden to ask for an increase of up to $100 million in loans at the election of existing or new lenders.

“More than ninety-nine percent of our restaurants remain open, with the remaining restaurants temporarily closed due to limited demand or other operational constraints,” said Gene Lee, CEO.

Restaurant chain also said it will furlough some of its restaurant support center staff as a result of the existing crisis, while the remaining staff will face pay cuts. In addition, senior executives of the company will take a 50 percent pay reduction, while CEO Lee will forego his salary until business is stabilized.

“We have significantly reduced expenses, including marketing, and deferred nearly all of our capital spending, which includes opening new restaurants. Additionally, we are making adjustments at the Restaurant Support Center to match our current operating model,” added Lee.

Darden owns popular restaurant chains, such as the Olive Garden, LongHorn Steakhouse, and Cheddar’s Scratch Kitchen.

Technical analysis: Stock price struggles to recover

Shares of Darden lost nearly 80% of their value in about five weeks in February and March. The stock price has recovered a part of its losses so far, as it has managed to gain around 32% in just two days of trading this week.

Darden stock daily chart (TradingView)

As you can see in the chart, the stock price has already managed to recover nearly 40% of losses. However, the first attempt failed, while the bulls are now trying to set up a base for a new push higher. For the bulls, the $68 mark is the key short-term target.

Summary

Shares of Darden Restaurants gained more than 30% this week after the restaurant chain announced it took a new $270 million loan, furloughed part of its staff, and slashed the pay of its senior executives by 50%.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.

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