10-QPeriod: Q1 FY2014

DARDEN RESTAURANTS INC Quarterly Report for Q1 Ended Aug 25, 2013

Filed September 30, 2013For Securities:DRI

Summary

Darden Restaurants, Inc. reported financial results for the first quarter of fiscal year 2014 (ended August 25, 2013), showing a sales increase driven primarily by new restaurant openings and acquisitions, particularly the Yard House acquisition. However, this sales growth was partially offset by a decline in same-restaurant sales across key brands like Olive Garden, Red Lobster, and LongHorn Steakhouse. Consequently, net earnings and diluted earnings per share from continuing operations saw a significant decrease compared to the prior year's quarter. The company faced increased costs in food and beverage, labor, and restaurant expenses, which outpaced sales growth, leading to a higher overall cost of sales as a percentage of revenue. Despite these challenges, Darden maintained a strong liquidity position, with cash flows from operations sufficient to cover capital expenditures and dividend payments. The company also reaffirmed its commitment to maintaining an investment-grade bond rating and has ample credit availability through its revolving credit facility.

Financial Highlights

49 data points
Beta

Revenue

$1.53B

21.1% Gross Margin

Net Income

$70.20M

4.6% Net Margin

EPS (Diluted)

$0.53

Total Assets

$7.06B

Cash & Equivalents

$108.90M

Free Cash Flow

$2.00M

Financial Statements
Beta
Revenue$1.53B
Cost of Revenue$1.21B
Gross Profit$323.40M
SG&A Expenses$165.60M
Operating Expenses$1.48B
Operating Income$42.20M
Net Income$70.20M
EPS (Basic)$0.54
EPS (Diluted)$0.53
Shares Outstanding (Basic)130.20M
Shares Outstanding (Diluted)132.60M

Key Highlights

  • 1Sales increased by 6.1% to $2.16 billion, driven by new restaurant openings and the Yard House acquisition, despite a 3.3% blended U.S. same-restaurant sales decrease for Olive Garden, Red Lobster, and LongHorn Steakhouse.
  • 2Net earnings from continuing operations decreased by 36.7% to $70.3 million, and diluted EPS from continuing operations fell by 37.6% to $0.53 compared to the prior year's quarter.
  • 3Total costs and expenses as a percentage of sales increased from 92.8% to 95.9%, primarily due to higher food and beverage, restaurant labor, and restaurant expenses.
  • 4The effective income tax rate decreased to 20.7% from 24.1% in the prior year's quarter, benefiting from increased tax credits.
  • 5Darden continues to invest in growth, with capital expenditures of $174.3 million primarily for new restaurant construction and remodels.
  • 6The company paid dividends of $71.7 million and repurchased $0.4 million in common stock during the quarter, signaling a commitment to shareholder returns.
  • 7Darden maintained a strong liquidity position with $108.9 million in cash and cash equivalents and $538.0 million in available credit under its revolving credit facility.

Frequently Asked Questions

The sales increase of 6.1% to $2.16 billion was primarily driven by the addition of 109 net new company-owned restaurants and the acquisition of 40 Yard House restaurants since the first quarter of fiscal 2013. This growth was partially offset by a 3.3% decrease in blended U.S. same-restaurant sales for key brands like Olive Garden, Red Lobster, and LongHorn Steakhouse.

Net earnings and diluted EPS from continuing operations decreased substantially due to a combination of factors. Total costs and expenses increased as a percentage of sales, rising from 92.8% to 95.9%. This was driven by higher food and beverage costs, increased restaurant labor expenses, and higher restaurant operating expenses, which collectively eroded profit margins despite the overall sales increase.

Darden anticipates blended U.S. same-restaurant sales for Olive Garden, Red Lobster, and LongHorn Steakhouse to be flat for the full fiscal year 2014. The company also expects to implement cost-saving measures, including workforce reductions and program spending cuts, to reduce expenses by approximately $15.0 million in fiscal 2014.

Darden maintains a strong liquidity position with $108.9 million in cash and cash equivalents and $538.0 million of available credit under its $750.0 million revolving credit facility. The company aims to maintain an investment-grade bond rating and has a diverse mix of long-term debt. Cash flows from operations are expected to be sufficient to fund capital expenditures, dividends, and other operating activities.