Darden Restaurants(DRI) - 2025 Q2 - Quarterly Report

Sales Performance - Sales for the three months ended November 24, 2024, increased by 6.0% to $2,890.0 million compared to $2,727.3 million in the same period last year[124] - Total sales increased 6.0% to $2.89 billion for Q2 FY2025 and 3.5% to $5.65 billion for the first six months of FY2025, driven by 142 net new restaurants and a blended same-restaurant sales increase of 2.4% and 0.7% respectively[151] - Olive Garden's sales increase for the second quarter of fiscal 2025 was driven by a 3.7% increase in average check, partially offset by a 1.6% decrease in same-restaurant guest counts[132] - Olive Garden's sales increased by 3.3% to $1,292.5 million in Q2 FY2025 compared to $1,251.4 million in Q2 FY2024, with same-restaurant sales (SRS) growth of 2.0%[181] - LongHorn Steakhouse's sales grew by 10.4% to $710.1 million in Q2 FY2025, driven by a 7.5% increase in same-restaurant sales, with guest counts up 4.3% and average check up 3.1%[181][182] - Fine Dining segment sales declined by 3.8% to $306.0 million in Q2 FY2025, with same-restaurant sales down 5.8%[181] - Other Business segment sales increased by 12.9% to $581.4 million in Q2 FY2025, with same-restaurant sales up 0.7%[181] Earnings and Profitability - Net earnings for the six months ended November 24, 2024, increased by 3.9% to $422.3 million compared to $406.6 million in the same period last year[124] - Net earnings from continuing operations were $215.7 million for Q2 FY2025 and $423.3 million for the first six months of FY2025, compared to $212.3 million and $407.1 million in the same periods of FY2024[151] - Operating income for the six months ended November 24, 2024, increased by 5.6% to $561.3 million compared to $531.4 million in the same period last year[124] - Olive Garden's segment profit margin increased to 21.4% in November 2024, up 40 basis points from 21.0% in November 2023[189] - LongHorn Steakhouse's segment profit margin rose to 18.9% in November 2024, a 150 basis points increase from 17.4% in November 2023[189] - Fine Dining's segment profit margin decreased to 17.2% in November 2024, down 60 basis points from 17.8% in November 2023[189] - Other Business segment profit margin increased to 13.6% in November 2024, up 70 basis points from 12.9% in November 2023[189] - LongHorn Steakhouse's profit margin increase was driven by positive same-restaurant sales and lower food and beverage costs[191] - Fine Dining's profit margin decrease was due to negative same-restaurant sales and higher restaurant labor costs[191] - Other Business' profit margin increase was primarily due to the addition of Chuy's operating results and lower food and beverage costs[191] Expenses and Costs - Marketing expenses increased by 32.2% to $48.8 million for the three months ended November 24, 2024, primarily due to increased marketing and media spend[124][136] - Food and beverage costs decreased as a percentage of sales by 0.9% due to pricing leverage, cost savings, and inflation impacts[185] - Restaurant labor costs decreased as a percentage of sales by 0.5% due to sales leverage and productivity improvements, partially offset by inflation[185] - Marketing expenses increased as a percentage of sales due to higher marketing and media spend[185] - General and administrative expenses increased as a percentage of sales by 0.7% due to Chuy's transaction and integration costs[185] - Depreciation and amortization expenses increased as a percentage of sales due to the Chuy's acquisition and new restaurant investments[185][186] Debt and Financial Position - The carrying value and fair value of long-term debt as of November 24, 2024, was $2.12 billion and $2.13 billion, respectively[143] - The company had $94.5 million of standby letters of credit related to workers' compensation and general liabilities as of November 24, 2024[145] - The company acquired 100% of Chuy's Holdings, Inc. for $649.1 million in an all-cash transaction, financed by $400.0 million in 4.350% senior notes due 2027 and $350.0 million in 4.550% senior notes due 2029[151] - The company's outstanding long-term debt as of November 24, 2024, includes $500 million of unsecured 3.850% senior notes due in May 2027[202] - The company has a $1.25 billion Revolving Credit Agreement with $974.2 million of credit available as of November 24, 2024[166] Cash Flow and Capital Expenditures - Net cash flows from operating activities increased to $661.8 million for the first six months of FY2025, up from $609.9 million in the same period of FY2024[172] - Capital expenditures increased to $314.5 million for the first six months of FY2025, reflecting higher new restaurant construction and remodel spend[173] - Net cash flows from operating activities increased in fiscal 2025 due to higher net earnings and timing of federal income tax payments[204] - The company believes its internal cash-generating capabilities and potential issuance of equity or unsecured debt securities will be sufficient to finance capital expenditures through fiscal 2025[205] Share Repurchases and Current Assets - The company repurchased 0.9 million shares in Q2 FY2025 and 2.1 million shares in the first six months of FY2025 under a $1 billion share repurchase program[174] - Current assets totaled $879.6 million as of November 24, 2024, up from $822.8 million as of May 26, 2024, primarily due to increases in inventories and prepaid expenses[175] Strategic Initiatives and Partnerships - The company entered into an exclusive multi-year delivery arrangement with Uber Technologies, Inc., with a pilot for first-party delivery at approximately 100 Olive Garden locations[129] - The company expects fiscal 2025 sales to be approximately $12.1 billion, with same-restaurant sales growth of approximately 1.5% and 50 to 55 new restaurant openings[131] - Total restaurant count increased to 2,152 as of November 24, 2024, up from 2,010 in the same period last year[127] Tax and Risk Management - The effective income tax rate for Q2 FY2025 was 12.3%, up from 12.1% in Q2 FY2024, primarily due to nondeductible transaction costs related to Chuy's acquisition[160] - Potential losses from equity forwards, commodity instruments, and interest rate exposures were estimated at $58.6 million over one year as of November 24, 2024[180] Segment Performance - Fine Dining segment saw a same-restaurant sales decrease of 8.3% in Q2 FY2025 due to a 8.3% decrease in guest counts, partially offset by a 2.7% increase in average check[156] - Fine Dining segment sales declined by 3.8% to $306.0 million in Q2 FY2025, with same-restaurant sales down 5.8%[181] - Other Business segment sales increased by 12.9% to $581.4 million in Q2 FY2025, with same-restaurant sales up 0.7%[181]