10-QPeriod: Q2 FY2002

DARDEN RESTAURANTS INC Quarterly Report for Q2 Ended Nov 25, 2001

Filed January 7, 2002For Securities:DRI

Summary

Darden Restaurants, Inc. reported solid financial results for the second quarter and the first half of fiscal year 2002, ending November 25, 2001. The company experienced robust sales growth, driven by strong same-restaurant sales increases at its core brands, Red Lobster and Olive Garden. Net earnings and diluted earnings per share saw notable year-over-year improvements. Management highlighted operational efficiencies and favorable product costs contributing to improved margins. Despite increased restaurant expenses and higher interest costs, the company demonstrated effective cost management in selling, general, and administrative expenses. Expansion efforts continue with growth noted in Bahama Breeze and Smokey Bones, indicating a strategic focus on diversifying the brand portfolio. Overall, the report suggests a positive trajectory for Darden Restaurants, underpinned by strong brand performance and strategic growth initiatives.

Key Highlights

  • 1Sales increased by 8.8% to $1.01 billion for the second quarter and by 7.4% to $2.09 billion for the first six months of fiscal 2002, compared to the prior year periods.
  • 2Net earnings for the second quarter rose to $36.5 million ($0.30 per diluted share) from $29.5 million ($0.24 per diluted share) in the prior year.
  • 3For the first six months of fiscal 2002, net earnings were $98.6 million ($0.81 per diluted share), up from $86.5 million ($0.70 per diluted share) in the comparable prior year period.
  • 4Red Lobster reported a 6.1% increase in U.S. same-restaurant sales for the quarter, marking its sixteenth consecutive quarter of growth.
  • 5Olive Garden achieved a 5.9% increase in U.S. same-restaurant sales for the quarter, extending its streak to twenty-nine consecutive quarters.
  • 6The company experienced an increase in restaurant expenses as a percentage of sales, primarily due to higher utility, restaurant technology, and new restaurant preopening expenses.
  • 7Darden continued its expansion, with Bahama Breeze operating 25 restaurants and Smokey Bones operating 12 restaurants by the end of the quarter, with further openings planned.

Frequently Asked Questions

Sales growth was primarily driven by strong same-restaurant sales increases at Red Lobster (6.1% in the U.S.) and Olive Garden (5.9% in the U.S.), along with the opening of new locations for Bahama Breeze and Smokey Bones.

Profitability was supported by lower food and beverage costs as a percentage of sales and improved restaurant labor efficiencies due to higher sales volumes. Selling, general, and administrative expenses also decreased as a percentage of sales due to reduced national marketing spend and media deflation.

Growth is being pursued through same-restaurant sales increases at core brands like Red Lobster and Olive Garden, and through strategic expansion of newer concepts such as Bahama Breeze and Smokey Bones BBQ Sports Bar. The company plans to open additional restaurants for these concepts in fiscal year 2002.

Darden utilizes a combination of long-term and short-term borrowings. Short-term debt increased to fund working capital needs and share repurchases. The company also has a substantial commercial paper program supported by a credit facility, and a shelf registration for additional debt securities.