10-QPeriod: Q3 FY2010

DARDEN RESTAURANTS INC Quarterly Report for Q3 Ended Feb 28, 2010

Filed April 2, 2010For Securities:DRI

Summary

Darden Restaurants, Inc. reported solid financial performance for the third quarter and the first nine months of fiscal year 2010, ending February 28, 2010. The company saw a notable increase in sales and net earnings, driven by strategic expansion and improved operational efficiencies, particularly in core brands like Olive Garden, Red Lobster, and LongHorn Steakhouse. Despite a challenging economic environment, Darden demonstrated resilience through effective cost management and a focus on driving top-line growth. Key financial metrics indicate a healthy trend. Sales for the third quarter rose by 4.2%, supported by both same-restaurant sales growth and the addition of new locations. Net earnings from continuing operations saw a significant increase of 24.7% for the quarter and 16.8% for the nine-month period. This improved profitability was achieved through a combination of lower food and beverage costs, reduced utility and maintenance expenses, and a lower effective income tax rate, which more than offset increases in labor costs. The company also maintained a strong liquidity position and remained compliant with its debt covenants, indicating financial stability.

Financial Highlights

49 data points
Beta

Revenue

$1.87B

23.7% Gross Margin

Net Income

$134.30M

7.2% Net Margin

EPS (Diluted)

$0.94

Total Assets

$5.24B

Cash & Equivalents

$260.30M

Free Cash Flow

$332.40M

Financial Statements
Beta
Revenue$1.87B
Cost of Revenue$1.43B
Gross Profit$443.80M
SG&A Expenses$169.50M
Operating Expenses$1.70B
Operating Income$134.80M
Net Income$134.30M
EPS (Basic)$0.96
EPS (Diluted)$0.94
Shares Outstanding (Basic)139.30M
Shares Outstanding (Diluted)142.30M

Key Highlights

  • 1Sales increased by 4.2% for the third quarter and 0.1% for the nine months ended February 28, 2010, driven by new restaurant openings and same-restaurant sales growth in key brands.
  • 2Net earnings from continuing operations grew by 24.7% in the third quarter and 16.8% in the nine-month period compared to the prior year.
  • 3Diluted earnings per share from continuing operations increased by 21.8% for the quarter and 15.2% for the nine months.
  • 4Food and beverage costs decreased as a percentage of sales due to lower commodity costs and pricing.
  • 5Restaurant labor costs increased as a percentage of sales, primarily due to higher wage rates, bonuses, and insurance costs.
  • 6The company maintained compliance with its debt covenants and had $645.7 million of availability under its revolving credit agreement.
  • 7Operating profit as a percentage of sales improved for Olive Garden, Red Lobster, and LongHorn Steakhouse.

Frequently Asked Questions

Sales growth in the third quarter was driven by a combination of a 1.3% increase in same-restaurant sales for Olive Garden, Red Lobster, and LongHorn Steakhouse, and the addition of 50 net new restaurants since the prior year's third quarter.

Darden benefited from lower food and beverage costs due to reduced commodity prices and pricing. Additionally, lower utility and maintenance expenses contributed to improved profitability. These efficiencies helped offset increases in restaurant labor costs.

Darden demonstrated strong liquidity, with cash and cash equivalents of $260.3 million at the end of the quarter. The company remained in compliance with its debt covenants and had $645.7 million in availability under its revolving credit facility, indicating a stable financial position.

Olive Garden, Red Lobster, and LongHorn Steakhouse all showed improved operating profit as a percentage of sales. Olive Garden, in particular, saw a 5.2% increase in sales for the quarter, driven by new restaurants and a rise in average check size.