10-QPeriod: Q3 FY2013

DARDEN RESTAURANTS INC Quarterly Report for Q3 Ended Feb 24, 2013

Filed April 1, 2013For Securities:DRI

Summary

Darden Restaurants, Inc. reported net sales of $2.26 billion for the third quarter and $6.25 billion for the first nine months of fiscal year 2013, representing increases of 4.6% and 5.4% respectively, compared to the prior year periods. This growth was primarily driven by the addition of new restaurants and the acquisition of Yard House. However, profitability metrics showed a decline, with net earnings from continuing operations decreasing by 18.0% for the quarter and 13.1% for the nine-month period. Diluted earnings per share from continuing operations also saw significant drops of 18.4% and 12.3% for the respective periods. This decline in profitability is attributed to increased restaurant expenses, labor costs, and depreciation, partially offset by higher sales and lower SG&A as a percentage of sales. The company incurred acquisition and integration costs related to Yard House, impacting earnings per share by approximately $0.02 and $0.08 for the quarter and nine months, respectively. Despite the dip in earnings, Darden demonstrated a strong balance sheet with total assets of $6.96 billion as of February 24, 2013. The company also maintained healthy liquidity with $103.9 million in cash and cash equivalents and significant available credit. Dividends paid increased year-over-year, reflecting continued commitment to shareholder returns. The company is actively managing its debt, with prudent use of its revolving credit facility and issuance of new senior notes. While sales growth continues through new unit development and strategic acquisitions, investors should monitor the impact of rising operating costs and the integration of new businesses on future profitability.

Financial Highlights

51 data points
Beta

Revenue

$1.59B

-10.5% Gross Margin

Net Income

$134.40M

8.5% Net Margin

EPS (Diluted)

$1.02

Total Assets

$6.96B

Cash & Equivalents

$103.90M

Free Cash Flow

$259.10M

Financial Statements
Beta
Revenue$1.59B
Cost of Revenue$1.75B
Gross Profit-$166.30M
SG&A Expenses$199.80M
Operating Expenses$2.08B
Operating Income$88.00M
Net Income$134.40M
EPS (Basic)$1.04
EPS (Diluted)$1.02
Shares Outstanding (Basic)129.30M
Shares Outstanding (Diluted)131.50M

Key Highlights

  • 1Total sales increased by 4.6% to $2.26 billion for the quarter and 5.4% to $6.25 billion for the nine months, driven by new restaurant openings and the Yard House acquisition.
  • 2Net earnings from continuing operations decreased by 18.0% for the quarter and 14.1% for the nine months, indicating pressure on profitability.
  • 3Diluted earnings per share from continuing operations declined significantly, down 18.4% for the quarter and 12.3% for the nine months.
  • 4Increased restaurant expenses and labor costs were primary drivers for the decline in profitability, as a percentage of sales.
  • 5The acquisition of Yard House contributed to sales growth but also incurred integration costs, negatively impacting EPS.
  • 6Total assets grew to $6.96 billion, supported by strategic acquisitions and capital expenditures.
  • 7The company maintained a strong liquidity position with $103.9 million in cash and cash equivalents and $533.1 million in available credit.

Frequently Asked Questions

Sales growth was primarily driven by the addition of 108 net new company-owned restaurants and the acquisition of Yard House USA, Inc., which added 40 restaurants. This expansion offset a decrease in same-restaurant sales for key brands like Olive Garden and Red Lobster.

The decline in net earnings and EPS was mainly due to an increase in operating costs as a percentage of sales. Specifically, restaurant expenses, restaurant labor costs, and depreciation and amortization expenses rose, outpacing the sales growth. Additionally, integration costs associated with the Yard House acquisition also impacted profitability.

Darden Restaurants maintains a healthy financial position. Total assets increased to $6.96 billion. Liquidity remains strong, with $103.9 million in cash and cash equivalents and $533.1 million in available credit under its revolving credit facility. The company also continues to manage its debt effectively through various senior note issuances and a term loan.

The Yard House acquisition contributed to the increase in total sales and expanded the company's brand portfolio. However, it also led to acquisition and integration costs, which negatively impacted diluted earnings per share by approximately $0.02 for the quarter and $0.08 for the nine-month period. Management is focused on integrating this business effectively.