Darden Restaurants(US:DRI)2025-07-18 20:34Part I Business Darden Restaurants operates 2,159 full-service restaurants, focusing on operational excellence and strategic brand management Company-Owned and Franchised Restaurants as of May 25, 2025 | Brand | Owned & Operated | Franchised | Total | | :--- | :--- | :--- | :--- | | Olive Garden | 935 | 52 | 987 | | LongHorn Steakhouse | 591 | 20 | 611 | | Cheddar's Scratch Kitchen | 181 | 3 | 184 | | Chuy's | 108 | 0 | 108 | | Yard House | 88 | 0 | 88 | | Ruth's Chris | 82 | 76 | 158 | | The Capital Grille | 71 | 2 | 73 | | Seasons 52 | 43 | 0 | 43 | | Eddie V's | 29 | 0 | 29 | | Bahama Breeze | 28 | 1 | 29 | | The Capital Burger | 3 | 0 | 3 | | Total | 2,159 | 154 | 2,313 | - On October 11, 2024, Darden acquired Chuy's Holdings, Inc. for $649.1 million in total consideration, financed through the issuance of senior notes18 - In the fourth quarter of fiscal 2025, Darden agreed to sell its eight Canadian Olive Garden restaurants to Recipe Unlimited, which will operate them as franchises20 - The company announced its decision to explore strategic alternatives for the Bahama Breeze brand, including a potential sale or conversion of its 28 locations21 Restaurant Count and Sales Growth (Last 5 Fiscal Years) | Fiscal Year | Total Restaurants | Total Sales (in millions) | | :--- | :--- | :--- | | 2021 | 1,834 | $7,196.1 | | 2022 | 1,867 | $9,630.0 | | 2023 | 1,914 | $10,487.8 | | 2024 | 2,031 | $11,390.0 | | 2025 | 2,159 | $12,076.7 | - Darden's human capital strategy focuses on employee retention, with 197,924 team members in fiscal 2025 and an hourly turnover rate of 67%, one of the industry's lowest747584 Risk Factors The company faces material risks from macroeconomic factors, human capital, health and safety, cybersecurity, and competitive pressures - Inflation and Macroeconomic Risks: The company faces pressure from rising costs for food commodities, labor, healthcare, and utilities, with economic slowdowns potentially reducing consumer discretionary spending125129130 - Human Capital Risks: The ability to attract and retain qualified team members is critical, facing challenges from a competitive labor market, rising minimum wages, and potential changes in immigration laws133134 - Health, Safety, and Cybersecurity Risks: The business is vulnerable to food-borne illness outbreaks and cybersecurity breaches, which could lead to data loss, operational disruption, and legal liability under evolving privacy laws138139143 - Integration and Strategic Risks: The successful integration of the Chuy's brand is complex and may not yield anticipated synergies, alongside risks from intense competition, changing consumer preferences, and adverse social media impacts144151153 - Operational and Financial Risks: A majority of restaurants are in leased properties, creating long-term obligations, with additional exposures to supply chain disruptions, goodwill impairment, tax law changes, and derivative market volatility157160180 Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments186 Cybersecurity Darden manages cybersecurity risk through an ERM framework overseen by the Audit Committee, reporting no material incidents to date - Cybersecurity risk management is integrated into the company's overall ERM program, with oversight provided by the Audit Committee and the Board of Directors187192 - The company employs a multi-faceted strategy including an incident response plan, regular third-party audits based on the NIST Framework, penetration testing, and cybersecurity awareness training for employees187188189 - The cybersecurity program is led by the Chief Information Officer (CIO), who has over 20 years of experience and provides periodic updates to the Audit Committee and the full Board193195 - As of the filing date, Darden is not aware of any cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect its business, operations, or financial condition191 Properties As of May 25, 2025, Darden operated 2,159 restaurants, primarily on leased sites, across the U.S. and Canada Restaurant Property Ownership (as of May 25, 2025) | Property Type | Count | | :--- | :--- | | Owned Sites | 94 | | Leased Sites | 2,065 | | Total Company-Owned | 2,159 | Lease Classification | Lease Type | Count | | :--- | :--- | | Land-Only Leases | 1,102 | | Ground and Building Leases | 666 | | Space/In-Line/Other Leases | 297 | | Total Leased Sites | 2,065 | Legal Proceedings The company faces ordinary course legal proceedings, which management believes will not materially impact its financial position or operations - Darden is subject to ordinary course litigation common to the restaurant industry, including claims from guests and employees468 - The company believes that the resolution of current legal matters will not have a material adverse effect on its financial condition or results of operations468 Mine Safety Disclosures This item is not applicable to the company - Not applicable198 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Darden's common stock trades on the NYSE (DRI), with recent share repurchases and a new $1 billion program, outperforming market indices - The company's common stock is traded on the NYSE under the symbol DRI200 Share Repurchases for Quarter Ended May 25, 2025 | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | | Feb 24 - Mar 30, 2025 | 157,368 | $193.77 | $517.7M | | Mar 31 - Apr 27, 2025 | 53,445 | $196.72 | $507.2M | | Apr 28 - May 25, 2025 | 49,251 | $203.32 | $497.2M | | Quarter-to-Date | 260,064 | $196.19 | $497.2M | - On June 18, 2025, the Board of Directors authorized a new share repurchase program for up to $1 billion of its common stock, replacing the previous authorization202 - Over the five-year period ending May 2025, a $100 investment in Darden stock grew to $307.28, outperforming the S&P 500 ($205.63) and the S&P Restaurant Sub-Index ($179.37)203205 Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2025, Darden's sales grew 6.0% to $12.08 billion with diluted EPS up 4.1%, projecting continued growth and strong liquidity Fiscal 2025 Financial Highlights vs. Fiscal 2024 | Metric | Fiscal 2025 | Fiscal 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Sales | $12.08 billion | $11.39 billion | +6.0% | | Diluted EPS (Continuing Ops) | $8.88 | $8.53 | +4.1% | | Net Earnings (Continuing Ops) | $1.05 billion | $1.03 billion | +2.0% | | Blended Same-Restaurant Sales | - | - | +2.0% | - Fiscal 2026 Outlook: Total sales growth projected at 7.0% to 8.0%, same-restaurant sales growth at 2.0% to 3.5%, and 60 to 65 new restaurant openings210 Segment Sales and Same-Restaurant Sales (SRS) - Fiscal 2025 vs. 2024 | Segment | Sales (FY25, in millions) | % Change from FY24 | SRS % Change | | :--- | :--- | :--- | :--- | | Olive Garden | $5,212.9 | 2.9% | 1.7% | | LongHorn Steakhouse | $3,025.5 | 7.8% | 5.1% | | Fine Dining | $1,304.8 | 1.0% | (3.0)% | | Other Business | $2,533.5 | 13.8% | 0.2% | Segment Profit Margin - Fiscal 2025 vs. 2024 | Segment | FY25 Profit Margin | FY24 Profit Margin | Change (BP) | | :--- | :--- | :--- | :--- | | Olive Garden | 22.3% | 22.1% | +20 BP | | LongHorn Steakhouse | 19.3% | 18.4% | +90 BP | | Fine Dining | 18.6% | 19.0% | -40 BP | | Other Business | 15.7% | 15.3% | +40 BP | - The company's adjusted debt to EBITDAR ratio was 2.1 as of May 25, 2025, well below the financial covenant requirement of 3.50 to 1.00261 Quantitative and Qualitative Disclosures About Market Risk Darden manages market risks from interest rates, currency, and commodities using derivatives, with a one-year value at risk of $63.3 million for net earnings - The company is exposed to market risks including interest rates, foreign currency, compensation, and commodity prices271 - Darden uses derivative instruments like swaps and forwards to hedge these risks271 - As of May 25, 2025, the one-year value at risk (95% confidence) for net earnings from changes in equity forwards, commodity instruments, currencies, and floating-rate debt was approximately $63.3 million272 - The one-year value at risk for the fair value of long-term fixed-rate debt was approximately $121.1 million273 Financial Statements and Supplementary Data This section presents Darden's consolidated financial statements, including auditor reports and detailed notes on accounting policies, acquisitions, and debt Reports of Management and Independent Registered Public Accounting Firm Management asserts effective internal controls, and KPMG issued an unqualified opinion on financial statements, with long-lived asset impairment as a critical audit matter - Management concluded that the company's internal control over financial reporting was effective as of May 25, 2025282 - KPMG LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting285291 - The critical audit matter identified by KPMG was the evaluation of long-lived assets for impairment, noting the subjective auditor judgment required to evaluate assumptions about future cash flows and useful life297 Consolidated Financial Statements Darden's FY2025 consolidated financial statements show $12.08 billion in sales, $1.05 billion net earnings, and strong cash flow from operations Consolidated Statements of Earnings (in millions, except per share data) | | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | Sales | $12,076.7 | $11,390.0 | $10,487.8 | | Operating Income | $1,362.3 | $1,314.2 | $1,201.8 | | Earnings from Continuing Operations | $1,051.0 | $1,030.5 | $983.5 | | Net Earnings | $1,049.6 | $1,027.6 | $981.9 | | Diluted Net EPS | $8.86 | $8.51 | $7.99 | Consolidated Balance Sheets (in millions) | | May 25, 2025 | May 26, 2024 | | :--- | :--- | :--- | | Total Current Assets | $937.7 | $822.8 | | Total Assets | $12,587.0 | $11,323.0 | | Total Current Liabilities | $2,247.5 | $2,192.5 | | Total Liabilities | $10,275.7 | $9,080.5 | | Total Stockholders' Equity | $2,311.3 | $2,242.5 | Consolidated Statements of Cash Flows (in millions) | | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $1,707.0 | $1,621.7 | | Net Cash used in Investing Activities | $(1,278.3) | $(1,324.6) | | Net Cash used in Financing Activities | $(385.8) | $(483.4) | Notes to Consolidated Financial Statements The notes detail accounting policies, the Chuy's acquisition, segment results, debt, leases, stock-based compensation, and commitments - The acquisition of Chuy's for $649.1 million resulted in the recognition of $268.4 million in goodwill and $198.4 million for the trademark intangible asset372375377 Long-Term Debt Components (as of May 25, 2025, in millions) | Note Description | Amount | | :--- | :--- | | 3.850% senior notes due May 2027 | $500.0 | | 4.350% senior notes due October 2027 | $400.0 | | 4.550% senior notes due October 2029 | $350.0 | | 6.300% senior notes due October 2033 | $500.0 | | Other senior notes (2035, 2037, 2048) | $439.1 | | Total Long-Term Debt | $2,189.1 | Lease Liabilities (as of May 25, 2025, in millions) | Lease Type | Current Liability | Non-Current Liability | Total Liability | | :--- | :--- | :--- | :--- | | Operating Leases | $220.1 | $3,816.9 | $4,037.0 | | Finance Leases | $23.8 | $1,583.8 | $1,607.6 | | Total | $243.9 | $5,400.7 | $5,644.6 | - Total stock-based compensation expense for fiscal 2025 was $79.1 million, up from $68.5 million in fiscal 2024452 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting or financial disclosure matters - There were no disagreements with accountants on accounting and financial disclosure470 Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting in the last quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of the end of the fiscal year471 - No material changes were made to the internal control over financial reporting during the last fiscal quarter472 Other Information No director or officer adopted, modified, or terminated any Rule 10b5-1 trading arrangement during the fourth quarter - No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the fourth quarter473 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement - This section incorporates by reference information from the company's 2025 Proxy Statement475 Executive Compensation Information on executive compensation is incorporated by reference from the company's 2025 Proxy Statement - This section incorporates by reference information from the company's 2025 Proxy Statement478 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the 2025 Proxy Statement - This section incorporates by reference information from the company's 2025 Proxy Statement479 Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2025 Proxy Statement - This section incorporates by reference information from the company's 2025 Proxy Statement480 Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the company's 2025 Proxy Statement - This section incorporates by reference information from the company's 2025 Proxy Statement481 Part IV Exhibits and Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including financial statements under Item 8 and an index of exhibits - All required financial statements are included in Item 8 of the report484 - No financial statement schedules are filed with this report485 - An index of exhibits filed as part of the Form 10-K is provided, including key agreements and compensatory plans486