10-QPeriod: Q1 FY2004

DARDEN RESTAURANTS INC Quarterly Report for Q1 Ended Aug 24, 2003

Filed October 7, 2003For Securities:DRI

Summary

Darden Restaurants, Inc. reported sales of $1.26 billion for the quarter ended August 24, 2003, a 7.2% increase compared to the prior year period, driven by same-restaurant sales growth and an increase in the number of company-owned restaurants. Net earnings for the quarter were $68.6 million, a decrease of 4.6% from the prior year, resulting in diluted earnings per share of $0.40, which was flat year-over-year due to share repurchases. The company experienced mixed performance across its brands. Olive Garden showed strong sales growth (9.8%) and achieved its 36th consecutive quarter of same-restaurant sales growth. Red Lobster, while still growing same-restaurant sales (1.1%), saw its total sales increase by only 2.5% and faced increased food and beverage costs due to higher crab usage. Management anticipates continued growth in fiscal year 2004, projecting an 8-12% increase in diluted earnings per share, though short-term sales trends led to a revised outlook for the second quarter.

Key Highlights

  • 1Sales increased by 7.2% to $1.26 billion for the quarter ended August 24, 2003.
  • 2Net earnings decreased by 4.6% to $68.6 million compared to the prior year period.
  • 3Diluted Earnings Per Share (EPS) remained flat at $0.40 year-over-year, benefiting from share repurchases.
  • 4Olive Garden reported a strong 9.8% sales increase and 3.9% same-restaurant sales growth.
  • 5Red Lobster's same-restaurant sales grew by 1.1%, but total sales growth was limited to 2.5%.
  • 6The company opened a net of 66 new restaurants compared to the prior year, contributing to sales growth.
  • 7Cash and cash equivalents increased significantly to $96.5 million from $48.6 million at the end of the prior quarter.

Frequently Asked Questions

Sales growth was driven by a combination of increased same-restaurant sales (particularly at Olive Garden) and the net addition of 66 company-owned restaurants compared to the prior year period.

Net earnings decreased primarily due to increased costs. Specifically, Red Lobster experienced higher food and beverage costs due to increased crab usage, and both Red Lobster and Olive Garden saw increases in restaurant expenses and depreciation as a percentage of sales. Higher utility and pre-opening expenses also contributed.

The company repurchased 1.4 million shares during the quarter, reducing the number of outstanding shares. This buyback helped to offset the decline in net earnings, allowing diluted earnings per share to remain flat at $0.40 year-over-year.

Despite some recent sales trends being below expectations, Darden reiterated its full-year fiscal 2004 outlook for diluted earnings per share growth of 8% to 12%. However, due to weaker than expected September sales, the company revised its second-quarter diluted EPS guidance to be between 15 to 18 cents.