10-QPeriod: Q1 FY2010

DARDEN RESTAURANTS INC Quarterly Report for Q1 Ended Aug 30, 2009

Filed October 8, 2009For Securities:DRI

Summary

Darden Restaurants, Inc. reported a modest increase in net earnings for the first quarter of fiscal year 2010, driven by improved cost management, particularly lower food and beverage costs, and effective expense control. While overall sales saw a slight decrease of 2.3% to $1.73 billion, this was largely attributed to a 5.3% decline in same-restaurant sales across key brands like Olive Garden, Red Lobster, and LongHorn Steakhouse. This decline was partially offset by the addition of new restaurant locations. Diluted Earnings Per Share (EPS) from continuing operations rose by 15.5% to $0.67, indicating enhanced profitability on a per-share basis despite the top-line pressure. Management highlighted a focus on operational efficiency and cost savings as key drivers for the profit growth amidst a challenging economic environment. The company's liquidity position remains solid, supported by operating cash flows and available credit facilities. Despite the decrease in same-restaurant sales, the strategic expansion through new openings and disciplined cost management position Darden to navigate the prevailing economic conditions.

Financial Highlights

31 data points
Beta

Revenue

$1.73B

23.0% Gross Margin

Net Income

$94.30M

5.4% Net Margin

EPS (Diluted)

$0.67

Cash & Equivalents

$79.40M

Free Cash Flow

$82.20M

Financial Statements
Beta
Revenue$1.73B
Cost of Revenue$1.34B
Gross Profit$398.30M
SG&A Expenses$171.40M
Operating Expenses$1.60B
Operating Income$95.00M
Net Income$94.30M
EPS (Basic)$0.68
EPS (Diluted)$0.67
Shares Outstanding (Basic)138.70M
Shares Outstanding (Diluted)141.30M

Key Highlights

  • 1Net earnings from continuing operations increased by 15.3% to $95.0 million, while diluted EPS from continuing operations grew by 15.5% to $0.67.
  • 2Total sales decreased by 2.3% to $1.73 billion, primarily due to a 5.3% combined same-restaurant sales decrease across Olive Garden, Red Lobster, and LongHorn Steakhouse.
  • 3Food and beverage costs decreased by 8.5% to $500.3 million, contributing to improved profitability as a percentage of sales.
  • 4Restaurant expenses decreased by 7.2% to $267.4 million, driven by lower utility and repair/maintenance costs.
  • 5The company continued its expansion, adding 64 net new restaurants since the prior year's first quarter.
  • 6Darden maintained compliance with its debt covenants and reported $532.5 million in availability under its revolving credit facility.
  • 7The company declared a quarterly dividend of $0.25 per share, indicating an annualized rate of $1.00 per share for fiscal year 2010.

Frequently Asked Questions

Darden experienced a 5.3% combined same-restaurant sales decrease across its key brands: Olive Garden, Red Lobster, and LongHorn Steakhouse. This decline was driven by a reduction in guest counts, although some brands saw a slight increase in average check size.

The increase in net earnings was primarily driven by improved cost management. Darden reported lower food and beverage costs and restaurant expenses (including utilities and maintenance) as a percentage of sales. These efficiencies helped offset the impact of reduced sales and drove higher profitability.

Darden's liquidity remains strong, supported by operating cash flows. The company reported $79.4 million in cash and cash equivalents at the end of the quarter. It also has substantial availability under its revolving credit facility, with $532.5 million available after considering a default by one lender. The company remains in compliance with its debt covenants.

Net interest expense decreased by 13.5% to $23.7 million, attributed to lower average debt balances and reduced interest rates on short-term debt. Darden actively uses interest rate swap agreements and treasury lock agreements to manage its exposure to interest rate fluctuations and hedge its debt obligations.