Darden Restaurants (DRI)
Q4 2012 Earnings Call
June 22, 2012 8:30 am ET
Matthew Stroud - Vice President of Investor Relations
Clarence Otis - Executive Chairman, Chief Executive Officer and Chairman of Executive Committee
C. Bradford Richmond - Chief Financial Officer, Principal Accounting Officer and Senior Vice President
Andrew H. Madsen - President, Chief Operating Officer and Director
Eugene I. Lee - President of Specialty Restaurant Group
David Palmer - UBS Investment Bank, Research Division
Michael Kelter - Goldman Sachs Group Inc., Research Division
Brian J. Bittner - Oppenheimer & Co. Inc., Research Division
Joseph T. Buckley - BofA Merrill Lynch, Research Division
Jeffrey Andrew Bernstein - Barclays Capital, Research Division
Jason West - Deutsche Bank AG, Research Division
John W. Ivankoe - JP Morgan Chase & Co, Research Division
Keith Siegner - Crédit Suisse AG, Research Division
Will Slabaugh - Stephens Inc., Research Division
Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division
Mitchell J. Speiser - The Buckingham Research Group Incorporated
Previous Statements by DRI
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Welcome, and thank you for standing by. [Operator Instructions] And today's conference is being recorded. [Operator Instructions] I'd now like to turn the meeting over to Matthew Stroud, Vice President of Investor Relations for Darden. Sir, you may begin.
Great. Thank you, Tim. 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 Restaurants' officers and employees may make forward-looking statements concerning the company's expectations, goals or objectives. Forward-looking statements are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements to reflect events or circumstances arising after such date.
We wish to caution investors not to place undue reliance on any such forward-looking statements. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. 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 food safety and food-borne illness concerns; litigation; unfavorable publicity; federal, state and local regulation of our business including health care reform, labor and insurance costs; technology failures; failure to execute a business continuity plan following a disaster; health concerns including virus outbreaks; the intensely competitive nature of the restaurant industry; factors impacting our ability to drive sales growth; the impact of indebtedness we incurred in the RARE acquisition; our plans to expand our newer brands like Bahama Breeze and Seasons 52; our ability to successfully integrate Eddie V's restaurant operations; a lack of suitable new restaurant locations; higher-than-anticipated costs to open, close or remodel restaurants; increased advertising and marketing costs; a failure to develop and recruit effective leaders; the price and availability of key food products and utilities; shortages or interruptions in the delivery of food and other products; volatility in the market value of derivatives; general macroeconomic factors, including unemployment and interest rates; disruptions in the financial markets; risk of doing business with franchisees and vendors in foreign markets; failure to protect our service markets or other intellectual property; a possible impairment in the carrying value of our goodwill or other intangible assets; a failure of our internal controls over financial reporting or changes in accounting standards; 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, the 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.
We plan to release fiscal 2013 first quarter earnings and same-restaurant sales results for fiscal June, July and August 2012 on Friday, September 21, 2012, before the market opens with a conference call shortly after.
We released fourth quarter earnings results this morning. These results were available on PR Newswire and other wire services. We recognize that most of you have reviewed our fourth quarter earnings results, so we won't take the time to go into them in detail once again in an effort to provide more time for your questions.
We will offer a line item summary of the P&L, discuss our financial outlook for fiscal 2013 and discuss our brand-by-brand operating performance summary. In an effort to focus on our long-term guidance, we will not be discussing near-term results such as the month-to-date sales trends.
With that, let me turn it over to Clarence.
Thanks, Matthew. And I'll start just by briefly sharing a very high level our assessment of the business including performance last year, so fiscal 2012, and what we expect this year, fiscal 2013. Then Brad, Drew and Gene are going to provide more detail on both few years and on the fourth quarter last year.
From a total sales perspective, results in 2012, excluding the Eddie V's acquisition, was just over 6%, which is short of our long-term target for total sales growth of between 7% and 9%. With respect to new restaurants, which is one of our 2 sales growth drivers, growth accelerated significantly in 2012 compared to the prior year and came close to the 5% long-term target that we have for some time now.
Now with the unit potential, new unit potential, of our current portfolio and that's been fortified by the acquisition of Eddie V's, the value-creating returns that we're getting from new restaurants and the strength of our real estate and talent pipelines, and those are the foundations for successful unit expansion, we expect to meet our 5% target for new restaurant growth in fiscal 2013 and then meet or exceed it for at least the next 4 years after that.
The second sales growth driver is same-restaurant sales. And in 2012, combined same-restaurant sales growth at our 3 large casual dining brands was roughly 0.5 point -- 0.5 percentage point higher than it was the prior year and 0.5 percentage point higher than the industry average. This growth was fueled by strong results at Red Lobster and LongHorn, and each of those brands is benefiting from successful efforts over the past 2 years to refresh all the things that drive success in this business, including their core menus, promotional strategies, advertising and facilities among other things. And we expect continued progress in each of these areas as we go forward.
There was same-restaurant sales softness at Red Lobster in the fourth quarter, but much of that reflects our commitment to maintaining an appropriate degree of balance in our annual promotional calendar. It's important to have both price-approachable and premium price offers so that we don't commoditize Red Lobster or any of our other brands around price.
Lobsterfest, which runs during the Lenten season, has long been an important premium price offer at Red Lobster's promotional calendar. This year, that timing worked against us because gasoline prices spiked during Lent that reduced consumers' discretionary income, and more importantly, had an adverse effect on their confidence.
Now certainly as we look back at the full year, blended same-restaurant sales growth for the 3 big brands would have been even stronger without the decline we experienced at Olive Garden. As we've discussed with you before, we're doing a number of things to a reestablish growth at Olive Garden same-restaurant sales. One of the most important is the transition we're making from promotions built around a construct that features 1 or 2 specific dishes, which worked well for a long time, but has grown increasingly less effective over the past 2 years to a promotional construct that's built around a culinary or value theme and highlights several dishes or one or more menu categories.