10-QPeriod: Q1 FY2006

DARDEN RESTAURANTS INC Quarterly Report for Q1 Ended Aug 28, 2005

Filed October 5, 2005For Securities:DRI

Summary

Darden Restaurants, Inc. reported strong financial performance for the first quarter of fiscal year 2006, ended August 28, 2005. Sales increased by 10.2% to $1.41 billion compared to the prior year's quarter, driven by robust same-restaurant sales growth at Olive Garden (7.4%) and Red Lobster (5.7%), alongside the addition of 57 net new company-owned restaurants. Net earnings saw a significant rise of 20.4% to $86 million, translating to a 20.5% increase in diluted earnings per share to $0.53. The company also demonstrated improved operational efficiency, with total costs and expenses decreasing as a percentage of sales. This was achieved through cost savings initiatives, including lower food and beverage costs and reduced workers' compensation expenses, which more than offset increases in restaurant labor and selling, general, and administrative expenses. Darden's liquidity remains strong, supported by operating cash flows and a new $500 million credit facility. The company also announced a substantial increase in its quarterly dividend from $0.04 to $0.20 per share, signaling confidence in future performance.

Key Highlights

  • 1Sales grew 10.2% to $1.41 billion, driven by strong same-restaurant sales and unit expansion.
  • 2Net earnings increased 20.4% to $86 million, with diluted EPS rising 20.5% to $0.53.
  • 3Olive Garden achieved its 44th consecutive quarter of U.S. same-restaurant sales growth (7.4%).
  • 4Red Lobster showed a positive trend with its fourth consecutive quarter of U.S. same-restaurant sales growth (5.7%).
  • 5Total costs and expenses as a percentage of sales decreased to 90.9% from 91.5% year-over-year.
  • 6The company secured a new $500 million credit facility, enhancing liquidity.
  • 7The quarterly dividend was significantly increased to $0.20 per share from $0.04.

Frequently Asked Questions

Sales growth was primarily driven by an increase in U.S. same-restaurant sales at Olive Garden (7.4%) and Red Lobster (5.7%), and the net addition of 57 company-owned restaurants since the prior year's first quarter.

Darden improved its operational efficiency by decreasing total costs and expenses as a percentage of sales. This was achieved through initiatives leading to lower food and beverage costs and reduced workers' compensation expenses, which more than offset increases in restaurant labor and selling, general, and administrative expenses.

Darden estimates that Hurricanes Katrina and Rita will have a minimal direct effect on fiscal 2006 sales and net earnings. Three restaurants are closed indefinitely due to Hurricane Katrina, and three are temporarily closed due to Hurricane Rita, with decisions on rebuilding and reopening pending recovery efforts.

Darden issued $300 million of senior notes in August 2005, increasing its long-term debt. Concurrently, it secured a new $500 million credit facility, which supports its commercial paper program and provides additional liquidity. The proceeds from the new notes were used to repay maturing debt.