Darden Restaurants(DRI) - 2025 Q1 - Quarterly Report

Financial Performance - Total sales increased by 1.0% to $2.76 billion for the first quarter of fiscal 2025 compared to $2.73 billion for the same period in fiscal 2024, driven by 42 net new restaurants, despite a same-restaurant sales decrease of 1.1%[80] - Net earnings from continuing operations were $207.6 million for the first quarter of fiscal 2025, up from $194.8 million in the same quarter of fiscal 2024, representing a 6.6% increase[80] - Diluted net earnings per share from continuing operations rose to $1.74 for the first quarter of fiscal 2025, compared to $1.60 for the same period last year, marking an 8.8% increase[80] Sales and Restaurant Performance - Sales for fiscal 2025 are projected to be between $11.8 billion and $11.9 billion, with same-restaurant sales growth of 1.0% to 2.0% and approximately 45 to 50 new restaurant openings[81] - Olive Garden's sales decreased by 1.5% to $1.21 billion, primarily due to a 5.6% decrease in same-restaurant guest count, partially offset by a 2.9% increase in average check[84] - LongHorn Steakhouse's sales increased by 6.5% to $713.5 million, driven by a 3.0% increase in average check and a 0.7% increase in same-restaurant guest counts[84] Operating Costs and Profit Margins - Total operating costs and expenses as a percentage of sales improved to 90.2% for the first quarter of fiscal 2025, compared to 90.7% for the same period in fiscal 2024[86] - Olive Garden's segment profit margin decreased by 80 basis points to 20.6% in Q1 fiscal 2025, primarily due to negative same-restaurant sales and increased labor costs[93] - LongHorn Steakhouse's segment profit margin increased by 40 basis points to 17.9% in Q1 fiscal 2025, driven by positive same-restaurant sales and decreased food costs[94] - Fine Dining's segment profit margin decreased by 100 basis points to 13.5% in Q1 fiscal 2025, impacted by negative same-restaurant sales and higher labor costs[94] Cash Flow and Investments - Net cash flows from operating activities increased to $273.2 million in Q1 fiscal 2025, up from $269.1 million in Q1 fiscal 2024, reflecting higher net earnings[105] - Net cash used in investing activities decreased significantly to $149.7 million in Q1 fiscal 2025 from $854.2 million in Q1 fiscal 2024, with no major acquisitions in the latter period[106] Debt and Financing - The company plans to acquire Chuy's Holdings, Inc. for $37.50 per share, with an enterprise value of approximately $605 million, expected to close in the second quarter of fiscal 2025[80] - The company plans to finance the anticipated acquisition of Chuy's Holdings through long-term debt issuances[102] - The company entered into a $1.25 billion Revolving Credit Agreement, replacing a prior $1.0 billion agreement, with $955.6 million of credit available as of August 25, 2024[98] - The company maintains a target of a maximum consolidated leverage ratio of 3.50 to 1.00 under its Revolving Credit Agreement[101] Market Risks and Challenges - The company is exposed to various market risks, including fluctuations in interest rates, foreign currency exchange rates, and commodity prices[116] - The interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows by targeting an appropriate mix of variable and fixed-rate debt[117] - The company faces risks related to labor costs, food safety, and compliance with privacy laws, which may impact operational efficiencies[114] - There are challenges in recruiting and retaining effective leaders and team members, which could affect business operations[114] - The company may experience increased costs related to compliance with government regulations and potential adverse publicity[114] - The inability to effectively manage social media impacts and consumer preferences may adversely affect demand for food at restaurants[114] - The company is at risk of disruptions in the financial markets that may impact consumer spending patterns and the availability of credit[114] Tax and Interest Expenses - The effective income tax rate for continuing operations decreased to 10.6% for the quarter ended August 25, 2024, down from 12.7% for the quarter ended August 27, 2023[90] - Net interest expense increased due to financing related to the acquisition of Ruth's Chris[89] Share Repurchase Program - A new share repurchase program allows the company to repurchase up to $1 billion of its common stock, with 1.2 million shares repurchased in Q1 fiscal 2025[109] Financial Position - As of August 25, 2024, total current assets were $819.6 million, while current liabilities increased to $2.32 billion, primarily due to higher short-term debt[110] - As of August 25, 2024, potential losses in future net earnings from changes in equity forwards, commodity instruments, and interest rate exposures were approximately $86.9 million over one year[117] - The value at risk from an increase in the fair value of long-term fixed-rate debt was approximately $92.8 million over one year[117] - The average fair value of long-term fixed-rate debt outstanding was $1.39 billion, with a high of $1.43 billion and a low of $1.37 billion during the three months of fiscal 2025[117]