10-QPeriod: Q2 FY2004

DARDEN RESTAURANTS INC Quarterly Report for Q2 Ended Nov 23, 2003

Filed January 6, 2004For Securities:DRI

Summary

Darden Restaurants, Inc. reported financial results for the second quarter and the first six months of fiscal year 2004, ending November 23, 2003. Total sales for the quarter increased by 6.6% to $1.14 billion, driven by same-restaurant sales growth at Olive Garden and an increase in the number of company-owned restaurants. However, Red Lobster experienced a decline in same-restaurant sales, impacting overall profitability. For the six-month period, sales grew by 7.0% to $2.40 billion. Net earnings for the second quarter decreased by 16.6% to $31.3 million, or $0.18 per diluted share, compared to $37.5 million, or $0.21 per diluted share, in the prior year. This decline was primarily attributed to lower-than-expected sales growth at Red Lobster and increased operating expenses as a percentage of sales across the company, including higher workers' compensation, insurance, utility, and pre-opening expenses. The company continues to expand its restaurant portfolio, particularly with the growth of Olive Garden and Smokey Bones BBQ. Financially, Darden maintained a healthy liquidity position, with cash flows from operations being a significant source. The company had $71 million in short-term debt outstanding under its commercial paper program and access to a $400 million credit facility. Capital expenditures remain focused on new restaurant development and remodeling. Despite a challenging operating environment, particularly at Red Lobster, the company expects its internal cash generation and available credit to be sufficient for its planned activities.

Key Highlights

  • 1Total sales for the second quarter of fiscal 2004 increased by 6.6% to $1.14 billion, driven by Olive Garden's strong performance and overall restaurant expansion.
  • 2Net earnings for the second quarter decreased by 16.6% to $31.3 million ($0.18 per diluted share) compared to $37.5 million ($0.21 per diluted share) in the prior year, impacted by rising operating costs and Red Lobster's performance.
  • 3Olive Garden achieved its 37th consecutive quarter of U.S. same-restaurant sales growth with a 4.3% increase, contributing significantly to sales.
  • 4Red Lobster experienced a decrease in U.S. same-restaurant sales by 3.1%, marking the end of its 23-quarter growth streak, primarily due to a drop in guest counts.
  • 5The company continued its expansion strategy, with a net increase of 67 company-owned restaurants in the last year, totaling 1,303 restaurants across its brands.
  • 6Total costs and expenses increased as a percentage of sales from 94.8% to 95.9% in the second quarter, driven by higher restaurant expenses, selling, general, and administrative costs, and depreciation.
  • 7Darden maintained a strong liquidity position with $27.8 million in cash and cash equivalents and access to a $400 million credit facility.

Frequently Asked Questions

Darden's sales for the second quarter of fiscal year 2004 increased by 6.6% to $1.14 billion, compared to $1.07 billion in the prior year. This growth was primarily attributed to strong same-restaurant sales at Olive Garden and the addition of 67 net new company-owned restaurants over the past year.

Net earnings decreased by 16.6% to $31.3 million ($0.18 per diluted share) in the second quarter of fiscal 2004. This decline was mainly due to lower-than-expected sales growth at Red Lobster, coupled with increases in operating expenses as a percentage of sales, including higher restaurant expenses, selling, general, and administrative costs, and depreciation. Specific cost pressures included increased workers' compensation, insurance, and utility expenses, as well as higher pre-opening expenses due to increased new restaurant openings.

Darden demonstrated a solid liquidity position, supported by operating cash flows and access to financing. As of November 23, 2003, the company had $27.8 million in cash and cash equivalents and $71 million in short-term debt outstanding. It also has a $400 million credit facility available. The company continues to invest in capital expenditures for new restaurant development and remodeling, funded by internal cash generation and available credit.

Olive Garden continues to be a strong performer, achieving its 37th consecutive quarter of U.S. same-restaurant sales growth (4.3% increase) and contributing significantly to overall sales. In contrast, Red Lobster faced challenges, with U.S. same-restaurant sales decreasing by 3.1%, primarily due to a decline in guest counts, ending its long streak of positive same-restaurant sales.