10-QPeriod: Q3 FY2004

DARDEN RESTAURANTS INC Quarterly Report for Q3 Ended Feb 22, 2004

Filed April 6, 2004For Securities:DRI

Summary

Darden Restaurants, Inc. reported its third-quarter and nine-month results for the period ending February 22, 2004. For the quarter, sales increased by 5.1% to $1.24 billion, and net earnings rose by 26.1% to $77.9 million ($0.46 per diluted share), up from $61.8 million ($0.35 per diluted share) in the prior year. This growth was primarily driven by strong performance at Olive Garden, which saw a 5.4% increase in same-restaurant sales, while Red Lobster experienced a 5.1% decline. The company also benefited from a lower effective income tax rate due to favorable resolution of prior tax matters. For the nine-month period, sales grew by 6.3% to $3.64 billion, and net earnings increased by 3.9% to $177.7 million ($1.04 per diluted share), compared to $171.2 million ($0.96 per diluted share) in the prior year. The company continued its expansion, with a net increase of 57 company-owned restaurants. Darden maintains a strong liquidity position, supported by operating cash flows and a $400 million credit facility, and expects its internal cash generation and available borrowings to be sufficient for future capital expenditures and share repurchases.

Key Highlights

  • 1Third-quarter sales increased 5.1% year-over-year to $1.24 billion.
  • 2Net earnings for the third quarter grew 26.1% to $77.9 million, or $0.46 per diluted share.
  • 3Olive Garden demonstrated robust growth with a 5.4% increase in U.S. same-restaurant sales.
  • 4Red Lobster's U.S. same-restaurant sales declined by 5.1%, though sequential improvement was noted.
  • 5The effective income tax rate decreased to 31.1% in the quarter due to a favorable tax matter resolution.
  • 6The company added a net of 57 company-owned restaurants compared to the prior year, ending the quarter with 1,311 locations.
  • 7Darden ended the quarter with $43.9 million in cash and cash equivalents and maintained a $400 million credit facility for liquidity.

Frequently Asked Questions

Sales growth in the third quarter was primarily driven by increased same-restaurant sales at Olive Garden (up 5.4%) and the addition of 57 net company-owned restaurants compared to the prior year. Olive Garden's performance was particularly strong, contributing significantly to the overall sales increase.

Olive Garden showed strong positive momentum with a 5.4% increase in U.S. same-restaurant sales, marking its 38th consecutive quarter of growth. In contrast, Red Lobster experienced a 5.1% decrease in U.S. same-restaurant sales, primarily due to a 7.4% drop in guest counts, although the company noted sequential improvement throughout the quarter and was actively working on a turnaround strategy.

The effective income tax rate for the third quarter decreased to 31.1% from 33.8% in the prior year. This reduction was primarily due to a favorable resolution of prior year tax matters. This lower tax rate provided a tailwind to net earnings, although its benefit was partially offset by increased charitable contributions and costs associated with Red Lobster's advertising agency change.

Darden Restaurants maintains a strong liquidity position, evidenced by robust operating cash flows and an undrawn $400 million credit facility. The company plans to fund future capital expenditures, including new restaurant openings and remodels, as well as its share repurchase program, through internal cash generation and available borrowings. The company is also actively managing its store portfolio, with plans to open approximately 30 new Smokey Bones locations in fiscal 2004.