10-QPeriod: Q3 FY2002

DARDEN RESTAURANTS INC Quarterly Report for Q3 Ended Feb 24, 2002

Filed April 9, 2002For Securities:DRI

Summary

Darden Restaurants, Inc. reported strong third-quarter fiscal year 2002 results, demonstrating significant year-over-year growth in both sales and net earnings. Sales for the quarter ended February 24, 2002, increased by 14.7% to $1.13 billion, driven by robust same-restaurant sales growth at its flagship brands, Red Lobster and Olive Garden. Net earnings rose to $66.2 million, or $0.54 per diluted share, from $49.5 million, or $0.40 per diluted share, in the prior year's comparable period. For the first nine months of fiscal 2002, sales grew by 9.9% to $3.23 billion, with net earnings reaching $164.8 million, or $1.34 per diluted share, up from $136.0 million, or $1.10 per diluted share, in the first nine months of fiscal 2001. The company highlighted improved operating margins due to favorable product costs, labor efficiencies, and expense management. Darden also provided an update on its brand performance, with both Red Lobster and Olive Garden showing strong same-restaurant sales increases, and its newer concepts, Bahama Breeze and Smokey Bones, continuing to expand and exceed expectations.

Key Highlights

  • 1Total sales for the third quarter increased by 14.7% to $1.13 billion compared to the prior year's third quarter.
  • 2Net earnings for the third quarter were $66.2 million, or $0.54 per diluted share, a significant increase from $49.5 million, or $0.40 per diluted share, in the prior year.
  • 3Red Lobster achieved a 12.0% same-restaurant sales increase in the U.S. for the quarter, marking its seventeenth consecutive quarter of growth.
  • 4Olive Garden reported a 9.8% same-restaurant sales increase in the U.S. for the quarter, extending its streak to thirty consecutive quarters of growth.
  • 5The company's newer concepts, Bahama Breeze and Smokey Bones, are expanding and performing well, with several new openings planned and executed.
  • 6Total costs and expenses as a percentage of sales decreased to 91.0% from 92.4% in the prior year's quarter, indicating improved operational efficiency.
  • 7Darden Restaurants announced a three-for-two stock split to be effective in May 2002, demonstrating confidence in future performance and aiming to increase shareholder value.

Frequently Asked Questions

The primary drivers of Darden's sales growth were strong same-restaurant sales increases at its core brands, Red Lobster (12.0% in the U.S.) and Olive Garden (9.8% in the U.S.). These increases, coupled with an overall expansion of restaurant locations, contributed to a 14.7% rise in total sales to $1.13 billion for the quarter.

Darden demonstrated improved cost management. Total cost of sales as a percentage of sales decreased due to lower food and beverage costs and labor efficiencies. Restaurant expenses also saw a slight decrease. Selling, general, and administrative expenses as a percentage of sales also declined, driven by favorable marketing expense mix and higher sales volumes. Overall, total costs and expenses as a percentage of sales improved to 91.0% from 92.4% in the prior year.

The company is actively expanding its restaurant portfolio, with new openings planned for Bahama Breeze and Smokey Bones. Darden also continued its share repurchase program to enhance shareholder value and announced a three-for-two stock split, signaling confidence in its future financial performance. A new $150 million debt issuance was completed to fund working capital needs.

Darden adopted SFAS 133 and SFAS 138 for derivatives and hedging activities with no material impact. The company plans to adopt EITF 00-14 (Accounting for Certain Sales Incentives) in the fourth quarter of fiscal 2002, which will reclassify sales incentives from SG&A to a reduction of revenue. SFAS 144 (Impairment or Disposal of Long-Lived Assets) will be adopted in the first quarter of fiscal 2003, with no expected material impact.