10-QPeriod: Q2 FY2010

DARDEN RESTAURANTS INC Quarterly Report for Q2 Ended Nov 29, 2009

Filed January 6, 2010For Securities:DRI

Summary

Darden Restaurants, Inc. reported sales of $1.64 billion for the quarter ended November 29, 2009, a slight decrease of 1.6% compared to the same period in the prior year. This decline was primarily driven by a 4.7% decrease in same-restaurant sales across its key brands like Olive Garden, Red Lobster, and LongHorn Steakhouse, reflecting a challenging economic environment impacting consumer spending. Despite the sales dip, the company managed to increase net earnings from continuing operations by 4.6% to $61.2 million, leading to a 2.4% rise in diluted earnings per share from continuing operations to $0.43. This improvement was largely attributable to a lower effective income tax rate and reduced food and beverage costs. For the first six months of fiscal 2010, total sales were $3.38 billion, down 2.0% year-over-year, again influenced by a 5.0% decline in same-restaurant sales. However, net earnings from continuing operations saw a more significant increase of 10.8% to $156.1 million, with diluted earnings per share from continuing operations rising 10.0% to $1.10. The company's management highlighted operational efficiencies, such as lower utility and maintenance expenses, as key drivers for profitability improvement amidst ongoing sales pressures. Darden also continues to expand its restaurant footprint, adding 55 net new restaurants in the trailing twelve months, which partially offset the same-restaurant sales decline.

Financial Highlights

31 data points
Beta

Revenue

$1.64B

21.3% Gross Margin

Net Income

$60.30M

3.7% Net Margin

EPS (Diluted)

$0.43

Cash & Equivalents

$56.90M

Free Cash Flow

$13.90M

Financial Statements
Beta
Revenue$1.64B
Cost of Revenue$1.29B
Gross Profit$348.90M
SG&A Expenses$169.90M
Operating Expenses$1.56B
Operating Income$61.20M
Net Income$60.30M
EPS (Basic)$0.43
EPS (Diluted)$0.43
Shares Outstanding (Basic)139.00M
Shares Outstanding (Diluted)141.70M

Key Highlights

  • 1Sales for the quarter decreased by 1.6% to $1.64 billion, largely due to a 4.7% decline in same-restaurant sales.
  • 2Net earnings from continuing operations increased by 4.6% to $61.2 million for the quarter, driven by lower taxes and food costs.
  • 3Diluted earnings per share from continuing operations rose 2.4% to $0.43 for the quarter.
  • 4For the six-month period, sales decreased by 2.0% to $3.38 billion, with same-restaurant sales down 5.0%.
  • 5Net earnings from continuing operations increased by 10.8% to $156.1 million for the six-month period.
  • 6The company added 55 net new restaurants in the past year, partially offsetting the decline in same-restaurant sales.
  • 7Total liabilities decreased to $3.33 billion from $3.42 billion year-over-year, indicating improved leverage.

Frequently Asked Questions

Darden Restaurants reported sales of $1.64 billion for the quarter ended November 29, 2009, which represents a decrease of 1.6% compared to $1.67 billion for the same quarter in the prior year. This decline was primarily attributed to a 4.7% decrease in same-restaurant sales across its major brands.

Despite the decrease in sales, Darden Restaurants managed to increase its net earnings from continuing operations by 4.6% to $61.2 million for the quarter ended November 29, 2009. Diluted earnings per share from continuing operations also saw an increase of 2.4% to $0.43, up from $0.42 in the prior year's comparable quarter. This improvement was mainly due to a lower effective income tax rate and reduced food and beverage costs.

Darden Restaurants' total liabilities decreased from $3.42 billion in the prior year to $3.33 billion as of November 29, 2009. The company also noted that it was in compliance with covenants under its revolving credit agreement. Management indicated confidence in its liquidity and ability to finance operations and capital expenditures through operating cash flows and its revolving credit facility.

While facing declining same-restaurant sales, Darden Restaurants continues to expand its physical footprint by opening new locations. The company added 55 net new restaurants since the second quarter of fiscal 2009, which helped to partially offset the negative impact of lower sales at existing restaurants. This expansion strategy aims to drive top-line growth despite prevailing economic headwinds.