Q3 2020 Earnings Call
[music] welcome to the Dart in fiscal year, 2023rd quarter earnings call. Your line is helping placed on listen only until the question.
Turning to answer session to ask a question you May press Star one on your Touchtone phone. The conference is being recorded it can have any objections. Please disconnect. At this time I will now I'll turn the call over to Mr., Kevin Catholic. Please go ahead.
Thank you Regina good morning, everyone and thank you for participating on today's call joining me on the call today are gene lead Darden CEO.
And regarding the CFO.
A reminder, comments made during this call will include forward looking statement as defined in the private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Those risks are described in the company's press release, which was distributed this morning, and then its filings with the Securities and Exchange Commission.
We are simultaneously broadcasting presentation. During this call, which is posted on the Investor Relations section of our web site at Darden Dot com.
Today's discussion and presentation will include certain non-GAAP measurements and reconciliations of these measurements are included in the presentation.
We plan to release fiscal 2024th quarter earnings on June 20 pits before the market opens followed by a conference call.
Given the circumstances, we will only briefly discuss third quarter results and we'll spend the majority of time discussing the impact of cobot 19.
Additionally, I want to remind everyone about the calendar shift that moved Thanksgiving from the second quarter of last year third quarter of this year, resulting in one fewer operating days for casual dining brands during the third quarter now I'll turn the call over to gene.
Thank you, Kevin and good morning, everyone I want to acknowledge that we're clearly the type of uncertainty as it relates to covert 19.
I know you have a lot of questions relating to the future and we'll try to answer them. The best we can.
First I want to say, thank you to our teams who are doing a great job managing through this adversity.
Additionally, I want to thank them for the outstanding job they didn't a third quarter our results were impressive.
I do see more press released this morning total sales from continuing operations were 2.35 billion an increase of 4.5%.
Same restaurant sales increased 2.3% and adjusted net earnings per share we're dollar 90.
However, today, we're cool you faced with more pressing matters to discuss given the rapidly changing environment.
And ongoing impact associated with covert 19.
To that end I want to share with you what the Darden team is doing as it relates to the virus and the impact to our operations Rick will share some of our quarter to date results and analysis on potential financial impacts.
Turning to our ongoing response.
We've established a cross functional crisis team led by me and we're in the <unk> in close contact with the CDC and other government agencies to ensure we have the most up to date information to inform the decisions we're making.
We have developed an action plan, a dressing business continuity operations communication and supply chain.
Our plan is updated as we receive and process new information.
The health and safety of our team members their families and our guest remain our remains our top priority and we continue to take steps to ensure the safety of or are we team members and restaurant management teams.
Yesterday, we announced they were implementing an emergency pay program that will cover all the team members for two weeks and restaurants facing a business this disruption.
This is in addition to the permanent paid sick leave policy, we announced last week.
At this point, we don't see any major impacts to our supply chain.
We have been in discussion with all of our major suppliers and they are confident that they can continue supplier restaurants, which safe.
Just think good to maintain service to our guess.
Our restaurant teams are well trained in food safety sanitation and managing through viruses.
We are regularly cleaning or restaurants with products that are on the CDC list of approve cleaning agents for cobot 19.
We are confident that we'd be able to maintain a steady flow of these products into our restaurants.
We are committed to keeping our restaurants open where permissible.
To be able to provide meals to to the community in which we operate whether that be off premise or dine in were permitted.
And I'll reiterate that we are committed to the health and safety of our team members and guest by offering limited or no contact curbside pickup and practicing social distancing enough in our seating configurations and all locations, where we are permitted to operate our dining rooms.
Well, we have a strong balance sheet and strong cash position given the material declines were seeing in our business will have to make dramatic change to our cost structure and cut nonessential spending.
I'd like to emphasize it this is a rapidly changing environment and as such we're not able to reasonably estimate the impact to our business.
You know assistant Rick will be riding our theoretical in nature and won't be able to predict the duration or scope of the impact at this time.
Now I'll turn it over to Rick.
Thank you Jane and good morning, everyone.
I want to start by saying that we actually had a pretty strong third quarter with same restaurant sales of 2.3% and diluted earnings per share of $1.90.
But obviously that is behind us and we're now focused on dealing with the unfolding situation.
Kind of going through the detailed financial results for this quarter in my prepared remarks, we have most of our usual financial discussion slides in the additional information section of our presentation.
Turning to our results so far in the fourth quarter. The shifting business momentum has been swift after announcements from state and local governments limiting restaurant operations.
Context, Darden same restaurant sales were positive 3% in the first week. The second week was basically flat in the third week was down almost 21%.
Same restaurant sales for our third fiscal week ending March 15th by segment were Olive garden was down 18.7%.
Longhorn down 15.9%.
Fine dining down 27.7%.
And other business down 27.5%.
A presentation has trends by weak for our segments.
Turning to our current weak sales through yesterday same restaurant sales are down roughly 60%.
The four P.M. yesterday, 60% of our restaurants are mandated to go only.
16% have mandated to other capacity constraints and the remaining 24% have no mandates, but we're choosing to operate them at reduced capacity of approximately 50% what practicing social distancing recommended by health officials.
To that to that end, we've made the following decisions in conjunction with our board.
First we have announced that the board has suspended our quarterly dividend payment.
The board intends to review, our quarterly dividend policy as developments warrant.
Second out in of out of an abundance of caution were fully drawn down or $750 million credit facility to further shore up our cash balance, resulting in approximately $1 billion on our balance sheet.
Third we are limiting cash outflows by more aggressively managing costs and significantly reducing capex.
Finally, given the level of volatility and uncertainty roque surrounding the future impact of cobot 19 on the broader U.S. economy, and any specific impact to our company. We have withdrawn our previous fiscal 2020 guidance issued December 19 2019.
In the absence of specific guidance for the fourth quarter fiscal 2020.
We want to provide any sensitivity for the quarter.
Assuming most restaurants have partial operations such as to go only you can assume that for each percentage point decline in sales for the fourth quarter, which is 14 weeks diluted earnings per share will decline approximately six to eight cents.
During these uncertain time, it's important to understand that the strength of our balance sheet and history of our cash flows.
That end when looking at our historical operating cash flows we've been able to generate enough cash to more than fund all of our needs.
And while I can't predict a level or length of any reductions to our sales assuming a sales decline of 50% for the entire fourth quarter would result in negative operating cash flow of approximately $300 million for the quarter.
Including changing that.
As I mentioned earlier, we have approximately 1 billion in available cash.
Given that I believe we'll be able to whether this disruption to our business and with that will take your questions.
At this time, if you would like to ask a question press star one on your telephone keypad. We ask that you. Please limit yourself to one question and one follow up we'll pause for just a moment to compile the Q1 day roster.
Our first question will come from the line of David Palmer with Evercore ISI.
Thanks, Good morning, as the country's largest casual dining company certainly makes sense that you'd be having discussions with the government right now.
It's also my understanding that the industry <unk>, the particularly the casual dining segment has been United find and asking for some sort of a direct relief plan.
Could you talk about some ideas that are realistically being considered even if you're not counting on them for darden survival. Thank you.
Good morning, David Yes, we are and I have been in contact with the administration and members of Congress to help them understand the new challenge that we face in the fourth full service sector. The priority of those discussions have been on developing a plan to be able to continue to keep our our team members.
On our payroll trying to develop a plan, which would U.S government money I'm too to pay them.
And not have to a separate with with our hundred 90000 team members that spend the focus of our discussions at this point.
And is there a mechanism that they have decided it on or even thought about to get that Don.
No I thought I believe that I mean at this at this point in time. We're early we're early in the discussion and it's just a lot happening.
In DC, but they are they are well aware of the situation that full service casual dining company owned.
Company owned <unk> companies are really facing company in a different than franchise.
All right. Thank you.
Your next question will come from the line of Jeff Farmer with Gordon Haskett.
Thank you did touch on it but what is your monthly cash burn rate and the scenario as you outlined where the restaurant dining rooms are closed and you're only able to serve off premise and as a follow up to that I'm. Just curious if you think you can keep that off premise number at olive garden.
Anywhere close to that I think it's 14 to $15000 per week.
And in normalized environment.
Hey, Jeff.
I know takeout only scenario, we would expect a variable margin to be positive. So that's very important for us is to make sure that we had positive variable margin on takeout, but our total EBITDA will be negative.
We do believe that we can build and we're seeing build into go sales at olive garden and at Longhorn Steakhouse.
Significant growth in to go during this time period.
I will say on a fully closed scenario, which is what we talked about a little bit ago of fully closed scenario.
Runrate cash burn rate is about $40 million to $50 million.
But we think a full close is unlikely closing everything including to go just quick variable margin.
I'm sorry, one more thing any variable margin, we get from the takeout really helps offset that fully close cash burn rate, but that's helpful. But that 40 and $50 million that time period is over a month is that correct or $40 million to $50 million a week.
Assuming we're fully close now we can probably take that cash burn rate down below 40 million, but that's just a range that we have and that's assuming we're fully closed again.
Thank you.
Your next question comes from the line of Catherines already with Goldman Sachs.
Great. Thank you.
Little bit of color of how many people you would need in restaurants, if you're running.
To go only.
And then you kind of alluded to you were seeing a big the olive garden and long.
Could you give some more granular numbers about how is that on trend has moved into three weeks like you split out the overall side.
And then just finally.
I know that you guys have not partnered with third party delivery before but just wondering exiting this very unique set of circumstances here.
It makes sense to maybe look at human short term.
Question on that front to help.
So you get hot summers. Thank you.
It's taken us on average six to 10 six to 10 team members in our to go only restaurants to operate.
I would suspect I think our you know it's been all over the place and everyday is changing dramatically, but I think when I looked at it yesterday.
Off premise business was growing about 20% versus last year.
So it's picking up as people change their behaviors as far as third party goes I would say that everything is on the table. However, what we're focused on right now is ramping up and using our team members to be able to keep them on our payroll and develop our own.
Delivery capabilities, which our teams are ramping very very quickly.
60, so I understand you guys are are looking at doing your own fulfilled delivery in certain markets. We're doing it now.
Thank you.
Your next question will come from the line of Nicole Miller with Piper Sandler.
Thank you good morning, I wish the conversation with your Wonder if you don't mind sharing please and then what is what is the intent in your opinion. Please.
For windows to deal with restaurants at any level.
In the past that would understand that they would like.
No.
The ability to drive down on the revolver and and also you know and then covenants as needed it's going to be important again, maybe not for darden, because you've already had the conversation.
But for many many of your appears going forward. If you could talk us through that we really appreciate it. Thank you.
Nicole we've had some really good conversations with our banks Weve got long standing relationships with them. They they were with us during the crisis in 2008.
And so we just as as we said as an out of them.
An abundance of caution we drew down our revolver. They said they'd be there if they if we needed them before we did that but we decided to do that just to get in front of anybody else that might want to as in the terms of our covenants, we haven't gotten to a point, where we're we're breaking our covenants.
We haven't had those discussions and even with our our stock price today would still be within our covenants.
Thank you.
Your next question comes from the line of Brett Levy with MKM partners.
Great. Thank you.
Thanks for having the called this morning.
If you could talk a little bit about.
What what have you ever conversations with been with landlords now that you're not the the sole owner of your properties and.
You talked about labor.
Over the first two weeks.
How are you thinking about it over the the more intermediate period of time.
The following two weeks following two months. Thank you.
Yeah, Brett we've had no conversations will landlords at this point in time, we have we've had.
Stopped all construction of all new restaurants.
We're negotiating.
With those landlords the push off the commencement of rent.
As far as far as LIBOR goes we've again, we've implemented our emergency pay policy for those of the being impacted from disruption standpoint.
What we do into the future will really depend on what kind of.
Relief, we may get from the administration to help pay our people.
But that's that's yet to be determined and we continue to have conversations I'll have conversations with.
With the leaders in Washington, as soon as I get off this off this call. So.
I really can't give a whole lot of guidance to that.
That makes sense and just.
On the store capacity.
What is your anticipation what are you hearing from other jurisdictions that are currently either fully open or at half capacity do you have any sense on how we should think about the next two weeks in terms of.
Just ongoing capacity within units and then I'll look acute habit.
The dynamic of this crisis is changing all the so I don't want to try to predict what.
It is going to happen.
All we can do is that we're going to react I am in contact with the governors of of the largest states.
To talk to them about how we believe that our environments. If we practice great. Good social distancing are some of the safest places to be.
And we'll continue to have those conversations, but we're not in control of that we will react to what.
The local government wants to do and we'll do the best job that we can but I have no way to predicting what's going to happen.
Your next question will come from the line of Sara Senatore with Bernstein.
Hi, Thank you.
I have a question if you could give maybe a little bit more insight into from the consumer behaviors, you're seeing with respect to know whether its geographic.
Add misprision or something else and obviously the whole country is.
Yeah.
I was watching.
Nearly as many carrying costs that to some extent now are you seeing different behaviors away from kind of the the Apple centers at the disease in the country. None on the coast for example, it looks like some of the data. We see suggests that where your restaurants are in terms of population density or what parts of that.
Which is at the country may make a difference I ask only constantly trying to think about how behaviors might change has this spread I'm just trying to get a sense of no DC different.
In different parts of the country, depending on how.
With the immediate impact is or is it more just everybody's kind of responding to the need is that they're seeing them and it's really not distinct.
Any kind of nuance you can share as we try to think there how this might play out over time.
Thanks.
I would say that obviously.
Part to the country that were impacted first the obvious were down significantly before other parts of the country.
Again, I would say more towards the middle of the country, you're seeing a little bit more of a normalized behavior.
And then in in the most of the northeast is pretty much shut down except for for off premise. So that's tough on the numbers are very difficult to read at this point in time.
Because we haven't had the chance to to bifurcate our sales report too.
Areas that are open for business for with the dining room with social distancing and those that are just open for to go so our ability to analyze that has been a little difficult just because changing so dramatically but.
Overall, you could see it has business travel started to decline due to all the business and is took it took a major hit.
And now with with various closing down I can't say consumer behavior has changed it's just it depends on the situation.
Okay, that's helpful and just to clarify.
Oh, yes, yes. There are just one just one thing just to give people an understanding of nap region I'm going to give you a range.
So for the week that we just ended the best Snap region was one that is not having any.
Forced closures et cetera, and that was that was Texas that was down 29% roughly in the casual dining space.
And the worst performing nap region was down 61% so no matter what it is.
All of these regions are down just because I think people of practicing their own social distancing, but that gives you a perspective on the casual dining business the range of of the impact.
Thank you that's very helpful. And then just quickly on the cost the cash flow.
Cash burn piece and this is probably a naive question, but as we think about kind of the outlays. Obviously, you have rent and occupancy that you talked about so taken and taking care of the people are there any other big buckets I should be thinking about as I think about what where this sort of cash outlays might be going you know irrespective of what.
Revenues look like.
You talked about most of my already if you think about our rent expense on a on a.
On a weekly and monthly basis, it's about 20 million of the 40 million.
And so I'm, sorry restaurant expense rent is about 8 million.
And so that's the highest non salary expense in this cash burn Im sorry, and Thats weekly.
$8 million a week.
Manager salaries.
Somewhere around the $10 million, but that can that can move if we if we have a very long for prolonged.
Impact or if something happens on the government side. So we could take that down if we want to make sure that our people get paid somehow.
So that's those are the big big buckets.
Okay. Thank you so much.
Your next question comes from the line of Andrew Strelzik with BMO.
Hey, good morning, Thanks for taking the question.
Kind of understanding you're the survival mentality right now I guess I'm wondering how you're thinking about advertising in this environment, you've kind of long touted.
You are robust digital capabilities is there anything you're doing in terms of mining that data to try to.
You know.
Managed through the current environment.
Andrew with a with the sales results. We're seeing now we are focusing any advertising that we do.
On to go, especially for Olive garden in longhorn, but we have we have dramatically reduced our advertising spend on without getting into too. Many other things that would be competitive.
We have significantly reduced our advertising spend or we plan on significantly reducing where we can but it would be focused on anything we do we'll be focused on our to go experience.
Okay, and then is there any more color you can provide on on just what we should expect from Capex.
Basically the only capex, we'd have we're focused.
And curbing any capital spend we're managing it aggressively.
And that really include stopping all non essential capital spending as gene mentioned we are.
Basically shutting down new restaurant construction, where we can and so that that cash burn number I told you before includes capex.
Great. Thank you very much.
Your next question comes from the line of John I haven't cope with JP Morgan.
Hi, Thank you so much I've I've had several if I may firstleap <unk>, what is that non essential capex number I know not the number that necessarily want to sustain but how close to zero could you actually.
Get wall like continuing to keep up the operation where you wanted to be.
Very low single digit millions.
Okay, Alright, well, yeah, it's that you get on drilling, let's just shows how extraordinary this environment is and then secondly, and this is just going to be from just a restaurant operations perspective, I mean, some numbers are kind of thrown out no gatherings above 25 people are 50 people I mean, the numbers kind of seem to be getting lower I mean, how do you.
Handle that from a pre IDE practicality perspective within the restaurant I mean is there a number of which you say listen we're going to have more than 25 people are 50 people whatever it is including a staff restaurant. It there at any one point in time is kind of the first point and secondly, just because I haven't seen it how do you practice social distancing with.
Servers, and bread and butter is and what have you at the people that have to have closer than 60 contact of what's your customers and then finally is there any thought it leaving that things like disposable. It takes a dish were doing it just so.
Yeah, the cleanliness aspect or the kind of contact to ask that can be is as minimal as possible.
Well, it's a lot in there John you got that you got it all in.
Yes.
Let me, let me see if I can remember.
Some of that.
First thing we do is once we get below 10 or told us They know kind of US yes, we basically go right to go most of our ordinance or 50% capacity or our high number like 100, and how we execute as we put someone at the front door only account and we we have the number.
We have employees were working on and most environments limited menus.
So we're we've got less employees in the building.
Where do we have some high volume restaurants with with limitations of 100 people in the business in the building that is still doing some fairly good numbers.
So I feel like we're really filling in need the consumer to consumer wants as far as the social distancing.
With our team members some answer it's a challenge most importantly, we're working on hygiene.
People are washing their hands were sanitizing.
Every table after every visit and were instructed our people to to really.
There.
Their face.
And back and be able to reach with their hands and.
Be able to.
Certainly gets the best they 10 in that environment to date, we went out of our 190000 team members. We have no confirmed cases.
We have we've had a great protocol, where we've got a significant people significant amount of people aren't allowed to work because they may have some sort of symptoms.
But we we've got we've got great processes in place.
We deal with much more contagion contagious viruses, all the time and we feel we feel our donna rooms, or some of the safest places right now and there are a lot. There are other places that are open and operating there are nowhere and we're nowhere near as safe.
As our dining rooms.
And if you don't mind, you did kind of talk about that.
Thank you had the language bright a dramatic change in your cost structure I know, we talked about on the restaurant, but is there anything on the DNA side that you'd like to point out at this point of.
Temporary versus drug for all May you, what but maybe it discretionary spend within the DNA side does not involve headcount or possibly does involve head count.
John other than me not taken salary.
Yes. There is this off this opportunities we've cut all all travel.
We'll continue to look at our staffing levels and the support center I'm not going to make any comments on my people listening.
We're going to do we're gonna have to make.
This is going to be some sacrifices that are gonna have to be made for the organization and.
We'll continue to look at Dutton evaluate that as soon as the.
As we get a better understanding of what we're really facing in that changes daily.
I know you're doing the best you guys and good luck with everything thanks John.
Your next question comes from the line of Dennis Geiger with CBS.
Thanks for the question Gene just wondering if you could provide any perspective on kind of how you're thinking about about the industry broadly the smaller change in the independence within this environment in particular, maybe relative to darden's brands I know the focus here is on the immediate and the near term and I know you don't have a crystal ball, but but just any thoughts that you've got perhaps on.
On how you think darden's brands or physician, perhaps if we can look a little bit passed and coming out of some of this.
What are the competition, if you care to share any of that thanks.
I think we're too early on this in this crisis for me to have an opinion on that I think that the full service casual dining business is an important piece of the overall economic engine of the United States.
You look at just the six top top chains, we employ over a half a billion people.
These are great jobs.
And people love working for Us and consumers Love Us and I think that you know, we're all innovative and were creative.
I think that we're going to fight as hard as we tend to get our share of the off premise business. In this time and I believe that will all come off the wall come out of it the bigger once in a strong position. We all have great people are people Love Love Love working for Us.
Our customers Love Us and we just got to manage through this and I think the industry will be fine.
Thank you.
Your next question comes from the line of Brian Bittner with Oppenheimer and company.
Good morning. Thanks.
Rick the sensitivity analysis, you gave us for the fourth quarter. I think you said every point in comp is worth about six to eight.
Pennies of Vps.
Im assuming that includes that includes things like the emergency pay program to cover hourly workers and whatnot, but can you just.
Just help us better understand what are you doing on your core operating cost per unit.
When we think about that sensitivity analysis I think you did a great job of explaining the cash burn and I think thats pretty straightforward, but just trying to understand these cost assumptions in that in that same store sales sensitivity analysis, a little bit more.
Yeah, Brian.
The six to eight cents does include the emergency pay that we had mentioned.
As you think about.
We're taking a more detailed look at every restaurant expense line right now I don't have the answer for you now, but the cash burn isn't that different than the personnel burn.
In our in our in those scenarios that I gave you we have ways to reduce that number even more if we need to.
[music].
And so we're continuing to look at it but remember we have a after we get the revolver draw down we have a billion dollars of cash and we've got a 40 million dollar cash burn a week. So we've got a lot of cash to be able to cover this.
For quite awhile.
If we have a full shutdown so.
Were good but but we are looking very hard at every expense figuring out ways that we can reduce those expenses some of them are easier than others to reduce.
Some of those take conversations with other people on which we havent had yet.
One of the easier ones as some of the some of the daily contracts that we might have in the restaurants.
Some of the services that we do trash pickup et cetera, because the restaurants aren't nearly as busy so we're focusing on every expense.
With the priority right now to ensure that we get.
Our people paid until something happens.
That we can't anymore.
Thank you and Jane it's a bold move to take your salary to zero and I wish you guys look.
Thank you, Brian we're going to be fine.
Your next question will come from the line of Howard Penney with Hedgeye.
Hey, Thank you for the question I know this is going to be a discipline ones answer, but if you even near conversations you're having that the government to different people.
We don't have conversations with any thoughts on the duration and the timing of this and and what you might be looking at to determine the duration or is it just basically the curves that we can all see thanks.
Howard.
I don't want to speculate on not an expert and then I'm looking at the same information every day every hour that you are.
When you look at the curves that they're predicting.
I think that what I'm hearing.
Hearing is a peak.
At the end of May beginning in June.
Awesome appreciate it and thank you again for your commentary today very out. Thank you Howard you bet.
Your next question comes from the line at Eric Gonzalez with Keybanc.
Hey, Thanks, a question I'm just curious if you can get back to the off premise conversation and maybe talk about what you're doing differently, which maybe haven't done the pass I know you mentioned that your that everything's on the table, but have you considered maybe lowering the threshold for small order delivery.
Then.
What your current stance is on our third parties, if thats changed at all and then secondarily on the on this dividend I was just curious on when things do return to normal.
Hello determine the size of dividends that we bring it back retire level or do you think about.
Maybe the payout ratio on trailing earnings basis. Thanks.
As far off premise, where we're on.
We've already ramped up we're doing delivery. We've you know, we're bringing down the threshold, where we have the available.
People to to make those deliveries I mean think of US at this point will lease would the next 24 to 72 hours will be pretty much delivering all of garden wherever people want to be delivered to as I said earlier on third party everything's on the table, but right now my obligations keep as many as of my people work.
Getting as possible and I want I think that we can ramp up our own delivery.
Much better and I'll, let rik talked about the dividend.
Eric Yes.
As we as we mentioned we did suspend the dividend and all I can tell used aboard going to reevaluate that dividend when the wind conditions change I can't tell you, where we will be what the dividend will be.
But I will say that in our capital returns to shareholders. The dividend is one of the most important things that we do to return capital to shareholders.
Thanks, Good luck.
Your next question comes from the line of David Tarantino with Baird.
Hi, good morning.
A question gene is on the.
Oh really workers I know.
Did the right thing it seems to.
Implement this emergency pay but I just wanted to confirm the length of time.
That covers and and then once said expires what your thought process is on on how you keep fees.
Employees engaged for when times to get better down the road.
David.
Tom commitment right now is once the disruption happens it's two weeks.
But no doubt the subject to change.
Depending on what happens.
With these relief packages from the government.
We know the government's going to start sending people checks directly.
Not come through loss that has to be part of our calculation.
When we think about the our people.
We're going to try to keep people.
Employed.
Maybe through referral program, where we can still have they can still have access to their benefits on they don't lose their 10 year, we're really really trying to work through our keeping our people engaged so one is Tom to ramp back up that we can ramp back up quickly.
But we have to we have to continue to work in concert with the government.
If they're going to if they're going to compensate.
The American public directly than there has to be in part of our calculations, we think about our people.
Great. Thanks for that and then Rick.
Just in terms of cash priorities I'll be the optimists.
Thinking that that your work through this short term period, and then returned to some sense of normal sees so.
I guess, what's what are what are your priority is once you get on the other side of this would it be to.
To pay down debt or or would you.
You'd be looking to reinstate the dividend sooner rather than later.
Hey, David Thanks for the question.
One of the things that we have said is the dividend is very important to us even with the debt. We are taking on we feel comfortable with that level of debt, if we need to keep it all.
We will do is look at the cash flow forecast going forward and and prioritize if we can the device.
Priorities of capital are maintaining our restaurants. So we have to continue to maintain the restaurants make sure that they look great.
Then the dividend then new unit growth and then share buyback that's what we've talked about for years that hasn't changed and we don't think this situation is going to change that so.
Again capital outlays, maintaining our restaurants dividends new unit growth.
Maybe at a more tamed level, depending on what happens going forward.
And then share buyback, we will likely if you pay down this revolver to get back to where we were before.
But thats all in the calculus.
Great. Thank you and best of luck. Thank you.
Your next question comes from the line of Jeffrey Bernstein with Barclays.
Great. Thank you very much.
Rick just to clarify the comments around sensitivity I think you said this week comps were down 60%.
Sharply from the 20% last week.
So just to connect that guidance to your work to forward guidance, you said if comps.
The down 50% for the fourth quarter cash from would be 300 million I'm, assuming that's relative to the billion you have to try and demonstrate your sustainability, but can you compare that to the comment you made of down 40 to 50 million per week, those oil apples to apples or just want to clarify that was a those details.
Those aren't necessarily Apple to Apple the 40 to 40 to 50 million per week remember is assuming that we're completely closed and that's on a run rate basis. The down 50% scenario that we gave to result in 300 million includes some of those run rate costs include some of the emerge.
NC paying it also includes the wind down of our negative net working capital.
Somewhat not all the way, but remember this read the restaurant business is a negative net working capital business and so as sales slow we start giving back some of that working capital credit that we have.
Then over time that working if were closed completely that working capital goes to goes away from a negative balance.
Understood. So when you say.
40 to 50 per week burn that's still 110 close you're not talking about just the in restaurant you're talking about this restaurant front doors locked it would bear on 40 to 50 million a week got here, we're talking the door locked and nothing every light off.
Gotcha, Okay, and then just to clarify that you said comps if comps were down 50, 50%. This quarter I think that was the frame of reference you gave a seven cents per quarter.
See somebody PS reduced threefifty yourself from the prior estimate so that means that the six to eight cents sensitivity change that's come full more aggressively that doesn't vary weather comps down five or comps down 50, you're assuming there's no kind of bell curve on that we should just assume a six to eight cents per cop point for the fourth quarter.
Yeah, that's a good assumption I think if it six to eight cents for every comp I remember for the full quarter and after first three weeks were only down 6% roughly so but that assumes 50% for the entire quarter.
But ultimately just my last question I mean qualitatively when the virus fades and we're hopeful that does soon but.
The reason a business model in the earnings don't bounce back to full strength.
Implying no material change to let's say fiscal 22 earnings I must feel value. This company on future years, just trying to make sure that any changes you're making to today wouldnt necessarily changed a long term earnings growth dynamic from here.
Well, Jeff what we are what we're trying to do is to make sure that we come out of this even stronger than what than where we where when we came into it.
But it all depends on what happens to the consumer and the length in depth of this of this crisis economically.
As long as people continue to get paid we think theres, a better chance that bounce back as a quicker bounce back if unemployment get to some pretty high levels and people aren't getting paid that's a different story, but that said if those things happen in the inflation that we have been seeing for the last couple of years, probably goes the other way too.
So.
We we havent looked a two years into the future. We're looking at hourly and weekly right now, but we believe that our position helps us become even stronger when we come out of this.
We can't comment necessarily on what the margin structure is going to look like in two years.
All this theres 10 people in the queue and I want to get to everybody, who we have a hard stop at 930, we've got to get we've got to get back to taking care of some things. So if you could keep but just to one question that'd be great. So I want to give anybody an opportunity, but that would really be helpful. Thank you.
Thank you.
Your next question will come from the line of Jake Bartlett with Suntrust.
Great. Thanks for taking the question. My only question is just trying to understand.
Did the 60% that you talked about in the last week I believe many jurisdictions have only limited dine in sales.
As of Monday, So does that really just include half of the impact of that trying to kind of really get the down to the run rate of sales.
Yeah Jake.
Most of those jurisdictions started Monday.
We we saw a little bit of a of the slowdown from Monday or Tuesday, but to set of Wednesday was about the same amount so about down 60. So.
As long as it stays that way.
We hope that that'll continue to be around that number but can't comment on what we actually think is going to happen.
That said, we're getting better and better on our to go business too so as it becomes to go to go only.
We would hope to continue to grow that.
Thank you.
Your next question comes from the line of Andrew Charles with Cowen.
Great. Thank you it looks like you have a small presence for olive garden, Seattle market and you. Obviously this has been decided the first us outbreak in perhaps a leading indicator for us the countries. So I'm curious can you talk about progression to sales and recently so this market to help with the potential analog for the broader market and then gene any best practices you learn from the Seattle market to help extrapolate the rest of the country.
You have a little more time here, thanks hanging there.
Yeah. Thanks, Jake I would say that CP, Seattle market, except for the downtown area held held very tough and sales hung in there.
For a while until until we start to close it close down the die rooms that was it was a very you know it was it was okay in aggregate.
Making that comment based on on looking at big groups and numbers are looking at the individual numbers in the specialty brands.
I don't know that that we've really learn anything that's going to its going to help us.
Well I think the biggest challenge we have right now is how do we really use our human resources in our creativity to ramp up.
Our off premise are off premise businesses.
I have I have a lot of faith in our leadership and our and our folks operationally to be able to really make this a real focus and keep this business growing throughout this crisis.
Thank you.
Your next question comes from the line of Chris Ocull with Stifel.
Thanks, guys good morning.
It was hoping you could go into maybe just a bit more detail about what the company's alternatives for cash liquidity would be if it happens to come to a point, where you would need additional funds. If you could just give a little bit more color there about.
Some of the options it would be available thanks.
Hey, Chris.
We are hoping not to did any of the additional options and Thats why we pulled down our revolver to get a roughly $1 billion and cash on our balance sheet to get us through this that said we have excellent banking relationships. We've been discussing other options with our banks I don't want to get into the details of that right now.
But if we believe that that again to be cautious we need a little bit more we think we have access to more without getting in any of the detail.
Great. Thanks, guys.
Your next question comes from the line of John Glass with Morgan Stanley.
Thanks, very much and I also appreciate.
Okay.
Thank you talked about now different time, you talked about your own sales. He most recently can you just clarify or do you think your trends.
Consistent with now are you outperforming or underperforming. We're also trying to get a sense of the benchmark for the industry.
You're starting to outperformed opportunities in more challenging times can you just maybe one trip. This numbers you talk about qualitatively. Thank you are outperforming.
Yes.
I would we don't have the nap for the most recent week that I. Just told you about so it's hard for me to say, whether we are outperforming then but I believe we were outperforming before that.
And we would then we would hope to continue to outperform.
We have a lot of room to be able to grow our to go business.
And the comment that I gave earlier was based on nap regions, so different regions of the country.
And we don't have that level of data yet.
Thank you.
Your next question comes from the line of Matt Difrisco with Guggenheim Securities.
Thank you percentage of the base now with the acquisition of charters that your skew towards tourism more travel if you could give us a an estimate on that and then I had a follow up on the follow up when we come out of this gene. How do you think the process would be if God forbid you did have a employee come down with Covance say in July or August.
Would you closed down the story or is this is just going to be something that is going to be treated greater than other.
Viruses that might enter the building in cause closures of stores you believe.
No John I think the depending on the situation how you know how long be when did the employee work how many days prior where they out before they were diagnosed.
What I'm seeing in other businesses is that the retail establishments are not closing there we would do a sick sues another level of cleaning if that was the case.
But I wouldn't expect major closures over having a unemploy diagnosed with Covance 19.
And then on the tourist travel scares you don't want.
Yeah, Matt we don't have that in front of us, but I can tell you one of our biggest states is Florida.
And that the we are still operating under our own.
Capacity constriction restrictions of 50% utilization of our restaurant.
Even with Chatters Cheddars was primarily a southeast brand.
And we haven't seen as many.
Mandated closures in the southeast as we've seen in other parts of the country that said tourism is likely down.
But that's also in what we've had and last week. So if you think about the last couple of weeks. It was a big spring break time and the week that were in is a big spring break time.
And then the other thing is the impacts that we're seeing are much more much more pronounced in fine dining than they are in the casual space right now and Thats in our presentation.
Thank you.
Your next question comes from the line of Gregory Francfort with Bank of America.
Hey, Thanks for the question just I know you commented on the revolver draw down were you able to or or did you make any changes to your amendments.
On those documents debt capital covenant change at all or or or no.
We did not make from what I understand we did not make any amendments on any of our any of our capital right now any of our debt.
Got it and then maybe just variable margin you talked about it is there a minimum hurdle, which variable margin is positive for to go mixes that 510%, 15% zero level at which that doesnt become a variable margin positive thanks, well I mean.
Third if we do very little to go business and we have someone sitting there waiting to take the order, that's where the variable margin gets negative but.
Our variable margins are pretty good and to go.
It's just a stair step is not as is not as straight line on tigo, because you've got somebody manning phones or something like that that said if our to go business gets to be a too low and we look at it on an individual restaurant basis. If our variable margins are negative, we probably end up close and that restaurant, but it's still too early to determine.
To determine that we're also using we've got managers and our restaurants that they can help.
They don't have as many things to do in the dining room. So they can do some to go and so we're able to maybe run a little bit fewer hourly employees. During this timeframe and reuse managers in some of this to go business as well.
Understood. Thank you.
Your next question comes from the line Peter's delay with BTI G.
Hey can you guys hear me.
Yep, Yeah, great. Thanks.
[music].
Can you guys just talk a little bit about if you have business interruption insurance or does this business interruption insurance cover this type of situation any kind of conversation given haven't with your insurers would be helpful.
Hey, Peter Yes, we do have business interruption insurance that covers the situation.
The maximum we can recover is $10 million.
We think based on what's going on now, we'll probably be able to recover all of that.
And I will say that that it's pretty rare to have some of this kind of coverage and so we were pretty fortunate that we were able to get this coverage.
And we'll we'll hopefully try to keep it next year. Thanks.
Thank you.
Your next question comes from the line of Andy Barish with Jefferies.
Yeah I'm all set questions have been asked thanks, Thanks for time and stay safe.
Thanks.
Your next question comes from the line of John Powers with Wells Fargo.
Hey, Great hopefully you can hear me. Okay. The question that I had was on we talked about the lender side of the equation with respect to negotiating power, but can you talk about perhaps any discussions you've had with landlords about potential with differing Reds.
The payments in the future period. Thanks.
Hey, John other than the the mentioned that Jean said about new restaurant slowing down construction, we haven't had discussions yet with landlords on deferring renter delaying our rent payments.
We're hoping not to have to get to that point, but we are probably going to start some discussion just to be sure that we have enough capital later, but we might not need to do that.
Great. Thank you good luck.
Thanks.
Your next question will come from the line of Priya Ohri Gupta with Barclays.
Great. Thank you so much for squeezing me and I Hope you can hear me clearly.
My question I was just around whether you guys had conversations with the rating agencies at this point and how much flexibility they're willing to afford.
Given sort of the fluidity of the nature of what we're seeing with Covidien and some if you have to creating thank you.
Yes, pre Oh, we have conversations with our rating agencies throughout the year and we've had conversations with them more recently.
I can't comment on where they are saying, what they're saying about cobot 19, but but I think they're looking at every company is rating right now based on the results.
But but but yes, we are having conversations with them.
I'll now turn the call back over to Kevin Gallagher for closing remarks.
Thank you that concludes our call I would like to remind you that we plan to release fourth quarter results on a.
Thursday June 25th.
Thank you for your time today.
Ladies and gentlemen that will conclude your call for today. Thank you all for joining and you may now disconnect.