10-Q/APeriod: Q1 FY2005

DARDEN RESTAURANTS INC Quarterly Report (Amendment) for Q1 Ended Aug 29, 2004

Filed January 7, 2005For Securities:DRI

Summary

Darden Restaurants, Inc. (DRI) filed an amended quarterly report (Form 10-Q/A) on January 7, 2005, to restate its financial statements for fiscal years 1996-2004 and the first quarter of fiscal 2005. The restatement primarily relates to the accounting treatment of lease expenses and depreciation. Previously, rent expense was recognized on a straight-line basis over the initial non-cancelable lease term. The company has now adjusted its accounting to recognize rent expense over the expected lease term, including cancelable option periods that carry economic penalties, and the lease term commencement is now aligned with the date of legal obligation for rent payments. This change has resulted in an increase in deferred rent liabilities and a decrease in retained earnings and deferred tax liabilities, although it did not impact reported cash flows, sales, or same-restaurant sales. Operationally, for the first quarter of fiscal year 2005 (ended August 29, 2004), Darden reported a 1.5% increase in sales to $1.28 billion, driven by new restaurant openings and same-restaurant sales growth at Olive Garden, partially offset by a decline at Red Lobster. Net earnings increased by 5.4% to $71 million, with diluted EPS rising to $0.44 from $0.40 in the prior year's comparable quarter. This improved performance was attributed to Olive Garden's strong sales and operational efficiencies, alongside cost-saving initiatives. However, Red Lobster experienced a sales decline, partly due to a strategic shift away from a less profitable promotion and a focus on operational improvements and guest satisfaction.

Key Highlights

  • 1Darden Restaurants has restated its financial statements for fiscal years 1996-2004 and the first quarter of fiscal 2005 due to a change in lease accounting and depreciation policies.
  • 2The restatement involves recognizing rent expense over the expected lease term, including certain option periods, and commencing the lease term upon legal obligation for rent payments.
  • 3Sales for the first quarter of FY2005 increased by 1.5% to $1.28 billion year-over-year.
  • 4Net earnings for the first quarter of FY2005 rose by 5.4% to $71 million, with diluted EPS increasing to $0.44 from $0.40 in the prior year.
  • 5Olive Garden demonstrated strong performance with its 40th consecutive quarter of U.S. same-restaurant sales growth (2.8%).
  • 6Red Lobster experienced a decrease in U.S. same-restaurant sales (7.6%), attributed to a strategic shift in promotional focus and operational adjustments.
  • 7The company continues to expand its restaurant footprint, with a net increase of 53 company-owned restaurants compared to the prior year's first quarter.

Frequently Asked Questions

Darden Restaurants filed this amended report to restate its financial statements for fiscal years 1996 through 2004 and the first quarter of fiscal 2005. This restatement is due to a change in accounting policy related to the treatment of lease accounting and leasehold depreciation.

The company has adjusted its accounting to recognize rent expense on a straight-line basis over the expected lease term, including cancelable option periods with economic penalties, and the lease term now commences when Darden becomes legally obligated for rent payments. This resulted in an increase in deferred rent liabilities, a decrease in retained earnings, and a decrease in deferred income tax liabilities. However, it did not impact reported cash flows, sales, or same-restaurant sales.

For the quarter ended August 29, 2004 (Q1 FY2005), Darden reported a 1.5% increase in sales to $1.28 billion and a 5.4% increase in net earnings to $71 million. Diluted earnings per share improved to $0.44 from $0.40 in the prior year's comparable quarter.

Olive Garden continued its strong performance with a 2.8% increase in U.S. same-restaurant sales, marking its 40th consecutive quarter of growth. In contrast, Red Lobster saw a 7.6% decrease in U.S. same-restaurant sales, driven by a strategic shift in promotional focus towards improving operational efficiency and guest satisfaction rather than solely short-term traffic drivers.