Darden Restaurants(DRI) - 2025 Q1 - Quarterly Results

Executive Summary Darden reported Q1 FY25 sales up 1.0% to $2.8 billion, adjusted diluted EPS down (1.7)% to $1.75, and reiterated its full-year outlook First Quarter Fiscal 2025 Financial Performance The company reported a 1.0% increase in total sales, a (1.1)% decline in blended same-restaurant sales, and a (1.7)% decrease in adjusted diluted EPS Consolidated Financial Highlights Total sales for the first quarter of fiscal 2025 increased by 1.0% to $2.8 billion, primarily due to sales from 42 net new restaurants, which partially offset a decrease in blended same-restaurant sales - Total sales increased 1.0% to $2.8 billion[3] - Sales growth was driven by 42 net new restaurants[3] - CEO Rick Cardenas acknowledged falling short of Q1 expectations but expressed confidence in the business strategy and brand teams' actions[3] Same-Restaurant Sales Blended same-restaurant sales for Consolidated Darden decreased by (1.1)%, with Olive Garden and Fine Dining experiencing declines, while LongHorn Steakhouse showed positive growth Q1 Fiscal 2025 Same-Restaurant Sales Change | Sales | Change (%) | | :--------------------- | :--------- | | Consolidated Darden* | (1.1)% | | Olive Garden | (2.9)% | | LongHorn Steakhouse | 3.7% | | Fine Dining* | (6.0)% | | Other Business | (1.8)% | Earnings Per Share Reported diluted net earnings per share from continuing operations were $1.74. Adjusted diluted net earnings per share, excluding transaction and integration costs, were $1.75, representing a (1.7)% decrease year-over-year Diluted Net Earnings Per Share | Metric | Q1 2025 (Reported) | Q1 2025 (Adjusted) | | :------------------------------------------------------------------ | :----------------- | :----------------- | | Diluted Net Earnings Per Share from Continuing Operations | $1.74 | $1.75 | | % Change vs Prior Year (Adjusted) | | (1.7)% | Segment Performance Analysis Analysis of segment performance reveals LongHorn Steakhouse's sales and profit growth, contrasting with declines in Olive Garden, Fine Dining, and Other Business segments Sales and Profit by Segment Segment profit is defined as sales less direct costs. In Q1 2025, LongHorn Steakhouse showed sales and profit growth, while Olive Garden, Fine Dining, and Other Business segments experienced declines in profit compared to the prior year - Segment profit excludes non-cash real estate related expenses[4] - Sales and profits from Ruth's Chris company-owned restaurants are included within the Fine Dining segment from the acquisition date forward[4] Q1 Fiscal 2025 Segment Sales and Profit (vs Q1 Fiscal 2024) | ($ in millions) | Q1 2025 Sales | Q1 2024 Sales | Q1 2025 Segment Profit | Q1 2024 Segment Profit | | :-------------------- | :------------ | :------------ | :--------------------- | :--------------------- | | Consolidated Darden | $2,757.0 | $2,730.6 | | | | Olive Garden | $1,209.1 | $1,227.9 | $249.0 | $262.3 | | LongHorn Steakhouse | $713.5 | $669.8 | $127.6 | $117.4 | | Fine Dining | $278.9 | $273.5 | $37.6 | $39.7 | | Other Business | $555.5 | $559.4 | $83.7 | $84.3 | Capital Allocation Strategy The company's capital allocation strategy includes a quarterly cash dividend of $1.40 per share and significant share repurchases Quarterly Dividend Darden's Board of Directors declared a quarterly cash dividend of $1.40 per share - Quarterly cash dividend declared: $1.40 per share[6] - Dividend payable on November 1, 2024, to shareholders of record on October 10, 2024[6] Share Repurchase Program The company repurchased approximately 1.2 million shares of its common stock for $172 million during the quarter, with $743 million remaining under the current $1 billion authorization - Repurchased approximately 1.2 million shares of common stock[7] - Total value of repurchases: $172 million[3][7] - Remaining authorization under the $1 billion repurchase program: $743 million[7] Fiscal 2025 Financial Outlook Darden reiterated its full-year financial outlook for fiscal 2025, projecting diluted net earnings per share from continuing operations between $9.40 and $9.60, despite Q1 earnings being lower than expected due to a traffic decline in July - Reiterated full-year financial outlook for fiscal 2025[8] - Projected diluted net earnings per share from continuing operations: $9.40 to $9.60[8] - CFO Raj Vennam noted Q1 earnings were lower than expected due to a significant step down in traffic during July, but sales trends have improved, supporting the reiterated guidance[8] Company Information This section provides an overview of Darden's diverse restaurant portfolio and its current company-owned restaurant count About Darden Darden is a restaurant company with a diverse portfolio of differentiated brands, including Olive Garden, LongHorn Steakhouse, and several fine dining and casual concepts - Darden's portfolio includes Olive Garden, LongHorn Steakhouse, Yard House, Ruth's Chris Steak House, Cheddar's Scratch Kitchen, The Capital Grille, Seasons 52, Eddie V's, and Bahama Breeze[9] Restaurant Count As of August 25, 2024, Darden operated a total of 2,040 company-owned restaurants, an increase from 1,998 in the prior year, with growth across most brands Number of Company-Owned Restaurants | Brand | 8/25/24 | 8/27/23 | | :-------------------------- | :------ | :------ | | Olive Garden | 923 | 906 | | LongHorn Steakhouse | 577 | 562 | | Cheddar's Scratch Kitchen | 181 | 183 | | Yard House | 88 | 86 | | Ruth's Chris Steak House | 82 | 77 | | The Capital Grille | 68 | 64 | | Seasons 52 | 44 | 44 | | Bahama Breeze | 44 | 42 | | Eddie V's | 29 | 30 | | The Capital Burger | 4 | 4 | | Darden Continuing Operations| 2,040 | 1,998 | Non-GAAP Reconciliation This section reconciles reported GAAP earnings to adjusted non-GAAP earnings, primarily for acquisition-related costs, to provide a clearer view of operational performance Adjusted Diluted Net Earnings Per Share Reconciliation The company provides a reconciliation of reported GAAP earnings to adjusted non-GAAP earnings, primarily adjusting for acquisition transaction and integration related costs to offer a clearer view of operational performance Reconciliation of Diluted Net Earnings Per Share from Continuing Operations | Fiscal Q1 $ in millions, except per share amounts | Q1 2025 Reported | Q1 2025 Adjusted | Q1 2024 Reported | Q1 2024 Adjusted | | :------------------------------------------------ | :--------------- | :--------------- | :--------------- | :--------------- | | Earnings Before Income Tax | $232.1 | $233.6 | $223.2 | $248.0 | | Income Tax Expense | $24.5 | $24.8 | $28.4 | $31.0 | | Net Earnings | $207.6 | $208.8 | $194.8 | $217.0 | | Diluted Net Earnings Per Share | $1.74 | $1.75 | $1.60 | $1.78 | | % Change vs Prior Year (Diluted EPS) | 8.7% | (1.7)% | | | | Adjustments: Acquisition transaction and integration related costs (Net Earnings) | | $1.2 | | $22.2 | | Adjustments: Acquisition transaction and integration related costs (Diluted EPS) | | $0.01 | | $0.18 | Consolidated Financial Statements This section presents the company's consolidated statements of earnings, balance sheets, and cash flows for the reported period Consolidated Statements of Earnings For the three months ended August 25, 2024, Darden reported an increase in sales and operating income, leading to higher net earnings and diluted EPS from continuing operations compared to the prior year Consolidated Statements of Earnings (Three Months Ended) | Metric | 8/25/2024 ($ in millions) | 8/27/2023 ($ in millions) | | :-------------------------------------- | :------------------------ | :------------------------ | | Sales | $2,757.0 | $2,730.6 | | Total operating costs and expenses | $2,487.8 | $2,477.7 | | Operating income | $269.2 | $252.9 | | Earnings before income taxes | $232.1 | $223.2 | | Income tax expense | $24.5 | $28.4 | | Earnings from continuing operations | $207.6 | $194.8 | | Net earnings | $207.2 | $194.5 | | Diluted net earnings per share (continuing operations) | $1.74 | $1.60 | Consolidated Balance Sheets As of August 25, 2024, Darden's total assets slightly increased to $11,355.5 million, with an increase in short-term debt and total liabilities, while total stockholders' equity saw a slight decrease Consolidated Balance Sheets (As of) | Metric | 8/25/2024 ($ in millions) | 8/27/2023 ($ in millions) | | :-------------------------------------- | :------------------------ | :------------------------ | | Total current assets | $819.6 | $822.8 | | Land, buildings and equipment, net | $4,272.8 | $4,184.3 | | Total assets | $11,355.5 | $11,323.0 | | Total current liabilities | $2,324.7 | $2,192.5 | | Long-term debt | $1,385.6 | $1,370.4 | | Total liabilities | $9,211.8 | $9,080.5 | | Total stockholders' equity | $2,143.7 | $2,242.5 | Consolidated Statements of Cash Flows For the three months ended August 25, 2024, net cash provided by operating activities increased, while net cash used in investing activities significantly decreased due to lower business acquisition spending. Net cash used in financing activities increased, primarily due to higher share repurchases and dividends paid Consolidated Statements of Cash Flows (Three Months Ended) | Cash Flow Activity | 8/25/2024 ($ in millions) | 8/27/2023 ($ in millions) | | :------------------------------------------------ | :------------------------ | :------------------------ | | Net cash provided by operating activities of continuing operations | $273.2 | $269.1 | | Net cash used in investing activities of continuing operations | $(149.7) | $(854.2) | | Net cash (used in) provided by financing activities of continuing operations | $(126.7) | $409.4 | | Decrease in cash, cash equivalents, and restricted cash | $(3.2) | $(175.7) | | Cash, cash equivalents, and restricted cash - end of period | $216.9 | $240.5 | Legal and Disclosures This section outlines important legal disclaimers regarding forward-looking statements, non-GAAP financial measures, and details of the investor conference call Information About Forward-Looking Statements This section provides a standard disclaimer regarding forward-looking statements, emphasizing that they involve risks and uncertainties that could cause actual results to differ materially from expectations, and the company undertakes no obligation to update them - Forward-looking statements are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995[10] - Such statements involve risks and uncertainties that could cause actual results to materially differ from anticipated results[10] - Key risks include economic factors, labor costs, health concerns, technology failures, acquisition integration, competition, and regulatory changes[10][11] Non-GAAP Information (General) The company uses non-GAAP financial measures to supplement its analysis of performance, believing they provide useful information for understanding operating results, but cautions that they should not be viewed as substitutes for GAAP results - Non-GAAP measures are used by management for performance analysis and provide useful supplemental information[12] - These disclosures should not be viewed as a substitute for GAAP operating results[12] Investor Conference Call Darden hosted a conference call and slide presentation on September 19, 2024, to review its financial performance, with webcast and replay options available for investors - Conference call held on Thursday, September 19, 2024, at 8:30 am ET[8] - Webcast available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=PaNJ6RaT[8](index=8&type=chunk) - A replay was made available shortly after the live broadcast[8]