10-QPeriod: Q1 FY2002

DARDEN RESTAURANTS INC Quarterly Report for Q1 Ended Aug 26, 2001

Filed October 10, 2001For Securities:DRI

Summary

Darden Restaurants, Inc. reported solid financial performance for the first quarter of fiscal year 2002, ended August 26, 2001. The company saw a 6.2% increase in total sales, reaching $1.08 billion, driven by both an expansion in restaurant count and strong same-restaurant sales growth at its flagship brands, Red Lobster and Olive Garden. Net earnings increased to $62.2 million, or $0.51 per diluted share, up from $56.9 million, or $0.46 per diluted share, in the prior year's comparable quarter. The company demonstrated improved cost management, with food and beverage costs decreasing as a percentage of sales due to lower product costs, and restaurant labor costs also showing efficiencies. While restaurant expenses saw a slight increase, overall costs as a percentage of sales remained stable. Darden also highlighted the continued expansion of its newer brands, Bahama Breeze and Smokey Bones, with multiple new openings planned. The company maintained a strong balance sheet and healthy cash flow from operations, though cash and cash equivalents decreased due to the purchase of Trust Owned Life Insurance.

Key Highlights

  • 1Total sales increased by 6.2% to $1.08 billion for the first quarter of fiscal year 2002 compared to the prior year.
  • 2Net earnings rose to $62.2 million ($0.51 per diluted share) from $56.9 million ($0.46 per diluted share) in the same quarter last year.
  • 3Same-restaurant sales increased by 3.2% at Red Lobster and 4.2% at Olive Garden, marking continued positive trends.
  • 4Food and beverage costs as a percentage of sales decreased to 31.8% from 32.5%, primarily due to lower product costs.
  • 5Restaurant labor costs as a percentage of sales improved to 30.8% from 31.3%, attributed to higher sales volumes and efficiencies.
  • 6The company continues to expand its Bahama Breeze and Smokey Bones brands, with 23 and 10 locations respectively, and plans for further openings.
  • 7Darden repurchased $51.2 million of its common stock in the quarter as part of its ongoing share repurchase program.

Frequently Asked Questions

Sales growth was driven by a combination of factors: an increase in the total number of restaurants (a net increase of 35 since the prior year's quarter) and positive same-restaurant sales growth at key brands like Red Lobster and Olive Garden.

Darden improved cost management by reducing food and beverage costs as a percentage of sales due to lower product costs, and by increasing efficiencies in restaurant labor costs, aided by higher sales volumes. While restaurant expenses saw a slight increase, overall costs remained well-controlled.

Darden purchased Trust Owned Life Insurance (TOLI) policies on certain officers and key employees. The cash surrender value of these policies is recorded as an 'Other Asset', and the associated costs impact 'selling, general and administrative expenses'. The company stated this purchase aims to offset costs related to its nonqualified deferred compensation plan.

The company expressed satisfaction with the performance of both brands. Bahama Breeze has 23 locations with plans for at least five more openings this fiscal year. Smokey Bones is also exceeding expectations, with 10 locations currently and five more planned for fiscal year 2002.