10-QPeriod: Q2 FY2012

DARDEN RESTAURANTS INC Quarterly Report for Q2 Ended Nov 27, 2011

Filed January 3, 2012For Securities:DRI

Summary

Darden Restaurants, Inc. reported its fiscal second-quarter and first-half results for the period ending November 27, 2011. While total sales showed year-over-year growth, driven by new restaurant openings and a modest increase in same-restaurant sales, the company experienced a significant decline in net earnings and diluted earnings per share from continuing operations. This decline was primarily attributed to increased costs, particularly food and beverage, restaurant expenses, and depreciation, as a percentage of sales. The acquisition of Eddie V's also contributed to some integration costs. Despite these pressures, the company demonstrated a commitment to shareholder returns through continued share repurchases and a recent increase in its quarterly dividend. Darden also maintained a strong liquidity position, supported by its new revolving credit facility and commercial paper program.

Financial Highlights

51 data points
Beta

Revenue

$1.83B

20.3% Gross Margin

Net Income

$53.70M

2.9% Net Margin

EPS (Diluted)

$0.40

Total Assets

$5.86B

Cash & Equivalents

$50.20M

Free Cash Flow

-$238.20M

Financial Statements
Beta
Revenue$1.83B
Cost of Revenue$1.46B
Gross Profit$370.90M
SG&A Expenses$187.40M
Operating Expenses$1.76B
Operating Income$54.10M
Net Income$53.70M
EPS (Basic)$0.41
EPS (Diluted)$0.40
Shares Outstanding (Basic)130.30M
Shares Outstanding (Diluted)133.20M

Key Highlights

  • 1Total sales increased by 6.1% for the quarter and 6.8% for the six months, driven by new restaurant openings and same-restaurant sales growth.
  • 2Net earnings from continuing operations decreased by 28.6% for the quarter and 14.9% for the six months compared to the prior year.
  • 3Diluted earnings per share from continuing operations decreased by 24.1% for the quarter and 11.2% for the six months.
  • 4Higher food and beverage costs and restaurant expenses as a percentage of sales were key drivers of the profit decline.
  • 5The company acquired 11 Eddie V's and Wildfish Seafood Grille restaurants for $59.2 million, with associated integration costs impacting earnings.
  • 6Darden repurchased 4.2 million shares in the quarter and 6.1 million shares in the six months, demonstrating a commitment to share buybacks.
  • 7A new $750 million revolving credit facility was established, providing robust liquidity, with $224.1 million available at the end of the period.

Frequently Asked Questions

The decline in net earnings was primarily driven by an increase in operating costs as a percentage of sales. Specifically, higher food and beverage costs (up 15.9% for the quarter) and restaurant expenses (up 6.6% for the quarter), along with increased depreciation and amortization, outpaced sales growth, squeezing profit margins.

Darden acquired 11 Eddie V's and Wildfish Seafood Grille restaurants for $59.2 million. While their results were immaterial to the overall financials, the acquisition did incur approximately $1.3 million in closing and integration costs during the quarter, which had an adverse effect on diluted earnings per share.

Darden has a strong liquidity position, supported by a new $750 million revolving credit facility with $224.1 million available as of November 27, 2011. The company also issued $400 million in senior notes in October 2011. Total debt stood at $1.86 billion in current liabilities and $1.45 billion in long-term debt, less current portion.

Darden continued its share repurchase program, buying back 4.2 million shares in the quarter and 6.1 million shares year-to-date. Additionally, the company increased its quarterly dividend to $0.43 per share, indicating an annualized rate of $1.72 per share for fiscal 2012.