10-QPeriod: Q3 FY2007

DARDEN RESTAURANTS INC Quarterly Report for Q3 Ended Feb 25, 2007

Filed March 29, 2007For Securities:DRI

Summary

Darden Restaurants, Inc. reported solid performance for the third quarter and the first nine months of fiscal year 2007. Sales increased by 4.7% to $1.54 billion for the quarter and 4.2% to $4.38 billion for the nine months, driven by same-restaurant sales growth at its key brands, Olive Garden and Red Lobster, and the opening of 38 new company-owned restaurants. Net earnings showed modest growth, up 1.0% to $106.4 million for the quarter and 4.3% to $256.6 million for the nine months. Diluted earnings per share (EPS) increased by a stronger 7.5% to $0.72 for the quarter and 9.6% to $1.71 for the nine months. This EPS growth outpaced net earnings growth, indicating effective cost management and potentially a reduced share count due to share repurchases. The company continues to invest in growth, with capital expenditures focused on new restaurant development and technology initiatives.

Key Highlights

  • 1Sales grew by 4.7% to $1.54 billion in Q3 FY2007, and by 4.2% to $4.38 billion for the first nine months, driven by same-restaurant sales increases at Olive Garden and Red Lobster, alongside new restaurant openings.
  • 2Diluted EPS saw a significant increase of 7.5% to $0.72 for the quarter and 9.6% to $1.71 for the nine months, outpacing net earnings growth.
  • 3Olive Garden achieved its 50th consecutive quarter of U.S. same-restaurant sales growth, with a 1.0% increase in Q3 FY2007, driven by a higher average check.
  • 4Red Lobster demonstrated strong performance with a 4.6% increase in U.S. same-restaurant sales for Q3 FY2007, also led by an improved average check.
  • 5The company adopted SFAS No. 123(R) for stock-based compensation, resulting in increased reported stock-based compensation expenses but also a reclassification of excess tax benefits from operating to financing cash flows.
  • 6Darden repurchased 8.3 million shares for $325.1 million during the first nine months of fiscal 2007 as part of its ongoing share repurchase program.
  • 7Asset impairment charges increased to $16.3 million in Q3 FY2007 and $21.2 million for the nine months, primarily due to impairments at Bahama Breeze, Red Lobster, and Smokey Bones restaurants.

Frequently Asked Questions

Sales growth was primarily driven by increases in U.S. same-restaurant sales at key brands like Olive Garden and Red Lobster, combined with the net addition of 38 company-owned restaurants.

The adoption of SFAS No. 123(R) resulted in higher reported stock-based compensation expenses. Additionally, it led to a reclassification of excess tax benefits from stock option exercises from operating cash flow to financing cash flow, impacting the presentation of cash flow statements but not the overall cash flow.

The Smokey Bones brand is experiencing weaker performance with a 5.2% decrease in same-restaurant sales for Q3 FY2007. Darden is testing a new concept, Rocky River Grillhouse, and is conducting a comprehensive review of the Smokey Bones business, with plans to convert several locations.

Darden maintains a strong liquidity position primarily through cash flows generated from operations. They also utilize a commercial paper program supported by a $500 million credit facility. The company continues to return capital to shareholders through dividends and a significant share repurchase program.