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Sept. 27, 2021, 7:39 a.m. EDT

Olive Garden parent says it’s finding lots of new talent but COVID contact tracing has caused staffing disruptions

Tonya Garcia

Darden Restaurants Inc. says it’s successfully finding plenty of talent to fill job positions, but contact tracing is forcing many to take temporary leave.

Darden’s (NYS:DRI) lineup includes Olive Garden, LongHorn Steakhouse, Bahama Breeze, Eddie V’s and The Capitale Grille.

Restaurants, like many other businesses, have had trouble finding workers in a tight labor market. Darden says it has put systems in place to find and hire the right people quickly.

“We recently launched a new talent acquisition system that helps increase our pool of candidates by allowing applicants to apply and schedule an interview in five minutes or less,” said Ricardo Cardenas, chief operating officer of Darden, on the company’s fiscal first-quarter earnings call on Thursday.

See: Why the restaurant industry created no new jobs last month

Other tools, like social media, are also yielding results, bringing more than 1,000 new workers on board each week and driving staff totals up to 90% of pre-pandemic levels.

“The biggest operational challenge we’ve been dealing with is the temporary exclusion of team members identified through contact tracing,” Cardenas said.

“Given our commitment to health and safety, we are diligent about exclusions, but they create sudden staffing disruptions for our operators. Despite being appropriately staffed in the majority of our restaurants, these exclusions reduced the number of available team members with little notice for our operators to prepare. This volatility can negatively impact sales in these restaurants for the duration of the exclusion period.”

Darden reported profit and sales that beat expectations, and announced a new $750 million share buyback program, bringing the total authorization to $1 billion.

Also: Prominent chef tells Fed that worker shortages are due to ‘life changes’ in wake of pandemic

“Olive Garden continues to generate best-in-class margins, and we remain optimistic that sales can recover further as staffing challenges should eventually normalize and key brand promotions eventually return (e.g. Buy One, Take One; Never Ending Pasta),” wrote Raymond James analysts in a note.

Raymond James rates Darden stock at outperform and raised its price target to $172.50 from $160.

“We are bullish on the largest casual dining company, with management’s focus on generating high quality sales and identifying opportunities to enhance productivity supporting confidence in Darden’s ability to capitalize on market share opportunities and generate sustainably (and meaningfully) higher margins,” wrote Credit Suisse analysts.

Credit Suisse rates Darden stock at outperform with a $180 target price, which it raised from $175.

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“While Darden’s bottom-line focus might mean Olive Garden’s same-store sales trends lag industry peers, we believe demand remains strong and see a bright future that includes permanent cost savings and long-term share gains as the industry finds equilibrium,” wrote KeyBanc Capital Markets.

“Darden’s portfolio continues to operate at a high level, having reset its cost structure, streamlined processes, pulled forward tech initiatives, and eliminated unpopular menu items. We believe these efforts, combined with competitor closures, have transformed Darden into a better business relative to its pre-pandemic self, which should warrant a premium valuation, in our view.”

KeyBanc rates Darden stock at overweight and raised its price target to $180 from $165.

Darden stock has rallied 33.2% for the year to date while the S&P 500 index (S&P:SPX) has gained 18.6% for the period.

Link to MarketWatch's Slice.