10-KPeriod: FY2017

DARDEN RESTAURANTS INC Annual Report, Year Ended May 28, 2017

Filed July 21, 2017For Securities:DRI

Summary

Darden Restaurants, Inc.'s 2017 10-K filing details a year of significant growth and strategic acquisition, highlighted by the $799 million purchase of Cheddar's Scratch Kitchen. This acquisition substantially expanded the company's footprint, adding 140 company-owned and 25 franchised locations. Financially, Darden demonstrated robust performance with a 3.4% increase in sales from continuing operations, reaching $7.17 billion, driven by a 1.8% same-restaurant sales increase (excluding Cheddar's) and new unit development. Net earnings from continuing operations saw a substantial 34.1% rise to $482.5 million, with diluted EPS increasing by 37.8% to $3.83, reflecting improved operational efficiencies and strategic brand management across its portfolio, which includes Olive Garden, LongHorn Steakhouse, and a growing fine dining segment. Darden also provided a positive outlook for fiscal 2018, projecting same-restaurant sales growth of 1.0% to 2.0% and overall sales growth of 11.5% to 13.0%, supported by plans to open 35-40 new restaurants. The company continued its commitment to shareholder returns through dividends and share repurchases, signaling financial strength and confidence in its ongoing growth strategy. The acquisition of Cheddar's is expected to be integrated into Darden's operational model in fiscal 2018, with management anticipating positive contributions and synergies.

Financial Highlights

54 data points
Beta

Revenue

$7.17B

18.5% Gross Margin

Net Income

$479.10M

6.7% Net Margin

EPS (Diluted)

$3.80

Total Assets

$5.29B

Cash & Equivalents

$233.10M

Free Cash Flow

$623.30M

Financial Statements
Beta
Revenue$7.17B
Gross Profit$1.33B
Operating Expenses$6.49B
Operating Income$677.50M
Interest Expense$34.40M
Net Income$479.10M
EPS (Basic)$3.85
EPS (Diluted)$3.80
Shares Outstanding (Basic)124.30M
Shares Outstanding (Diluted)126.00M

Key Highlights

  • 1Acquisition of Cheddar's Scratch Kitchen for $799 million, adding 140 company-owned and 25 franchised restaurants.
  • 2Total sales from continuing operations increased by 3.4% to $7.17 billion in fiscal 2017.
  • 3Same-restaurant sales (excluding Cheddar's) increased by 1.8%, driven by a combination of increased average check and guest counts.
  • 4Net earnings from continuing operations grew by 34.1% to $482.5 million, with diluted EPS up 37.8% to $3.83.
  • 5Company plans to open 35-40 new restaurants in fiscal 2018, including Cheddar's locations.
  • 6Outlook for fiscal 2018 projects sales growth of 11.5%-13.0% and same-restaurant sales growth of 1.0%-2.0%.
  • 7Continued commitment to shareholder returns through dividends ($2.24 per share in fiscal 2017) and share repurchases ($469.8 million remaining under the current program).

Frequently Asked Questions

The acquisition of Cheddar's Scratch Kitchen on April 24, 2017, for $799.0 million, significantly expanded Darden's restaurant portfolio by adding 140 company-owned and 25 franchised locations. The results of Cheddar's were included in Darden's financial statements from the acquisition date, contributing to the overall sales growth. Darden plans to integrate Cheddar's operations into its existing model in fiscal 2018.

Olive Garden saw a 2.6% sales increase, driven by a 2.6% same-restaurant sales increase (2.4% average check, 0.2% guest count). LongHorn Steakhouse reported a 2.2% sales increase, with a 2.2% same-restaurant sales increase (1.6% average check, -0.4% guest count). The 'Other Business' segment, including Yard House, Bahama Breeze, and Seasons 52, experienced a 6.7% sales increase, largely due to new unit growth and positive same-restaurant sales at several brands, partially offset by a decrease at Yard House.

Darden anticipates combined same-restaurant sales to increase between 1.0% and 2.0% in fiscal 2018. Total sales from continuing operations are projected to grow between 11.5% and 13.0%, reflecting the full-year impact of Cheddar's and new restaurant openings. The company plans to open approximately 35 to 40 new restaurants and expects capital expenditures to be between $400 million and $450 million.

Darden improved its operating efficiency, with total operating costs and expenses decreasing as a percentage of sales to 90.6% from 91.0% in the prior year. Key improvements included lower food and beverage costs (28.9% of sales vs. 29.4%), flat restaurant labor costs (31.6% of sales), and reduced general and administrative expenses (5.4% of sales vs. 5.5%). Restaurant expenses as a percentage of sales increased slightly to 17.6% from 16.8%, primarily due to higher rent expenses related to real estate transactions.