Darden Restaurants, Inc. (DRI)
Q4 2010 Earnings Call
June 24, 2010 8:30 AM ET
Matthew Stroud – Vice President, IR
Clarence Otis – Chairman and CEO
Drew Madsen – President and COO
Brad Richmond – Chief Financial Officer
Gene Lee – President, Specialty Restaurant Group
David Tarantino – Robert W. Baird
Jeff Omohundro – Wells Fargo
John Dravenstott – KeyBanc Capital Markets
Mitch Speiser – Buckingham Research
Steven Bunno – Banc of America
Jason West – Deutsche Bank
Jonathan Waite – Precipio Research
Tom Forte – Telsey Advisory Group
Amod Gautam – J.P. Morgan
Karen Lamark – Federated Investors
Steve Anderson – MKM Partners
Karen Hallpass – Credit Suisse
Matt DiFrisco – Oppenheimer
David Dorfman – Morgan Stanley
Joshua Long – Piper Jaffray
Robert Derrington – Morgan Keegan
Previous Statements by DRI
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Ladies and gentlemen, good morning. Thank you for standing by. And welcome to the Darden Restaurants Fourth Quarter Earnings Release. At this time, all lines are in a listen-only mode. Later there will be an opportunity for questions and instructions will be given at that time. (Operator Instructions)
And as a reminder, today’s conference is being recorded. At this time, I’d like to turn the conference over to our host, Vice President of Investor Relations, Mr. Matthew Stroud. Please go ahead.
Thank you, Tom. Good morning, everyone. With me today are Clarence Otis, Darden’s Chairman and CEO; Drew Madsen, Darden’s President and COO; Brad Richmond, Darden’s CFO; and Gene Lee, President of Darden’s Specialty Restaurant Group. We welcome those of you joining us by telephone or the internet.
During the course of this conference call Darden Restaurant’s officers and employees may make forward-looking statements concerning the company’s expectations, goals or objectives. These forward-looking statements could address future economic performance, restaurant openings, various financial parameters or similar matters. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to materially differ from those anticipated in the statement. We wish to caution investors not to place undue reliance on any such forward-looking statements.
Any forward-looking statements speak only as of the date on which the statements are made and we undertake no obligation to update such statements to reflect events or circumstances arising after such date. The most significant of these uncertainties are described in Darden’s Form 10-K, Form 10-Q and Form 8-K reports including all amendments to those reports.
These risks and uncertainties include the impact of intense competition, change in economic or business conditions, the price and availability of food, ingredients and utilities, supply interruptions, labor and insurance costs, the loss of, or difficulties in recruiting key personnel, information technology failures, increased advertising and marketing costs, higher than anticipated costs to open or close restaurants, litigation, unfavorable publicity, health concerns including virus outbreaks and food safety, a lack of suitable locations, government regulations, including healthcare reform, a failure to achieve growth objectives through the opening of new restaurants or the development or acquisition of new dining brands, weather conditions, risks associated with Darden’s plans to expand Darden’s newer brand Bahama Breeze and Seasons 52, our ability to achieve the full anticipated benefits of the RARE acquisition, possible impairment of carrying value or goodwill or other intangible assets, risks associated with incurring substantial additional debt, a failure of our internal controls over financial reporting, disruptions in the financial market, volatility in the market value of our derivatives and other factors and uncertainties discussed from time to time in reports filed by Darden with the Securities and Exchange Commission.
A copy of our press release announcing our earnings Form 8-K used to furnish the release to the Securities and Exchange Commission and any other financial and statistical information about the period covered in the conference call, including any information required by Regulation G, is available under the heading Investor Relations on our website at darden.com.
By way of information, we plan to release fiscal 2011 first quarter earnings and same-restaurant sales for fiscal June, July and August 2011 on Tuesday, September 21st after the market close. Let’s begin by talking about the quarter. We released fourth quarter and fiscal year earnings yesterday afternoon. These results were available on PR Newswire, First Call and other wire services.
We recognize that most of you have reviewed our fourth quarter and fiscal year earnings results so we want take the time to go through them in detail once again in an effort to provide more time for your questions. We will offer a line item summary of P&L and discuss our financial outlook for fiscal 2011, as well as briefly discuss our brand-by-brand operating performance summary.
We expect this call to last approximately one hour, but we are prepared to extend that if necessary. Brad will now provide additional detail about our financial results for the fourth quarter and our fiscal year. Drew will briefly review our operating performance of larger brands. Gene will discuss the Specialty Restaurant Group. Brad will review our fiscal 2011 outlook and he will be followed by Clarence, who will have some final remarks. We’ll then respond to your questions. Brad?
Thank you, Matthew, and good morning. Darden’s total sales from continuing operations decreased 6% in the fourth quarter to $1.86 billion. You may recall that the prior year included an additional fiscal week that contributed approximately $124 million in sales. Comparing total sales on a 13-week versus 13-week basis would have resulted in a 1% increase in sales.
Let’s review the same-restaurant component of our total sales growth. As a reminder, our fiscal same-restaurant sales results are calculated on a 13-week versus 13-week basis, while total sales results are calculated on a reported basis by 13 weeks versus 14 weeks.
For context, industry, same-restaurant sales as measured by Knapp-Track and excluding Darden, their estimate to be down approximately 1.4% for the quarter. Note that the Knapp-Track benchmark is calculated on a calendar week basis, which is different from our fiscal week basis methodology, Knapp-Track alliance the same calendar week year-over-year, while our fiscal weeks were off one-week in fiscal 2010, due to the 53rd week in fiscal 2009. As such, our fourth quarter is adversely affected by the fiscal week comparison.
On a calendar week comparison though, which is consistent with how the Knapp-Track benchmark is calculated. Darden’s same -- blended same-restaurant sales results for the fourth quarter were down 0.9%. On a calendar week comparison, Olive Garden’s fourth quarter U.S. same-restaurant sales declined 0.8%.
Red Lobster’s fourth quarter U.S. same-restaurant sales declined 1.7%. LongHorn Steakhouse’s fourth quarter U.S. same-restaurant sales increased 2.3%. The Capital Grille’s fourth quarter same-restaurant sales increased 6.9% and also on a calendar week comparison Bahama Breeze’s fourth quarter same-restaurant sales increased 0.9%.
As noted in the press release yesterday, we recognize a $12.7 million reduction to revenue generated -- related to gift card breakage in the fourth quarter. This reduction in gift card breakage revenue was a non-cash charge. The reduction was applied ratably across our brands on the basis of total sales and has had an adverse effect on our margins this quarter, but I would also mention it does not impact the same-restaurant sales results.