10-QPeriod: Q1 FY2015

DARDEN RESTAURANTS INC Quarterly Report for Q1 Ended Aug 24, 2014

Filed October 3, 2014For Securities:DRI

Summary

Darden Restaurants, Inc. reported a significant transformation in its financial performance for the quarter ended August 24, 2014, largely driven by the sale of its Red Lobster brand. While continuing operations showed a net loss of $19.3 million, this was significantly overshadowed by a substantial gain from discontinued operations, primarily the Red Lobster sale, which resulted in total net earnings of $503.2 million. This strategic divestiture has fundamentally altered the company's financial profile, shifting focus to its remaining core brands like Olive Garden and LongHorn Steakhouse. Despite the overall positive net earnings due to the sale, sales from continuing operations saw a modest increase of 4.2% to $1.60 billion, driven by new restaurant openings and same-restaurant sales growth in most brands except Olive Garden, which experienced a slight decline. The company also incurred significant debt retirement costs, impacting interest expense. Looking ahead, Darden anticipates continued sales growth and a significant increase in diluted net earnings per share from continuing operations for fiscal year 2015, signaling confidence in its focused brand strategy.

Financial Highlights

50 data points
Beta

Revenue

$1.60B

15.6% Gross Margin

Net Income

$503.20M

31.5% Net Margin

EPS (Diluted)

$3.81

Total Assets

$6.12B

Cash & Equivalents

$413.70M

Free Cash Flow

-$4.70M

Financial Statements
Beta
Revenue$1.60B
Cost of Revenue$1.28B
Gross Profit$248.70M
SG&A Expenses$160.00M
Operating Expenses$1.53B
Operating Income$67.60M
Net Income$503.20M
EPS (Basic)$3.81
EPS (Diluted)$3.81
Shares Outstanding (Basic)132.20M
Shares Outstanding (Diluted)132.20M

Key Highlights

  • 1Darden Restaurants reported a net earnings of $503.2 million for the quarter, largely due to a $817.2 million pre-tax gain from the sale of Red Lobster.
  • 2Continuing operations incurred a net loss of $19.3 million, compared to a net earning of $42.2 million in the prior year period, impacted by debt retirement costs.
  • 3Sales from continuing operations increased by 4.2% to $1.60 billion, driven by new restaurant openings and positive same-restaurant sales growth across most brands.
  • 4Olive Garden experienced a 1.3% decrease in U.S. same-restaurant sales, while LongHorn Steakhouse saw a 2.8% increase.
  • 5Net interest expense significantly increased to $111.3 million, primarily due to approximately $80.0 million in debt breakage costs associated with retiring $900.0 million of long-term debt.
  • 6The company initiated an accelerated share repurchase (ASR) program to buy back $500.0 million of its common stock.
  • 7Darden announced its CEO, Clarence Otis Jr., would be stepping down by December 31, 2014, or upon the election of his successor.

Frequently Asked Questions

The primary driver of Darden's net earnings was the substantial gain of $817.2 million recognized from the sale of its Red Lobster brand, which is reported as earnings from discontinued operations.

The sale of Red Lobster significantly boosted net earnings but also led to a large portion of assets and liabilities being classified as 'held for sale' and then removed from continuing operations. The financial statements now focus on the performance of Darden's remaining brands.

Darden expects continued sales growth from its continuing operations, with projected increases of 5.0% to 7.0% for total sales. The company also anticipates diluted net earnings per share from continuing operations to increase by 30.0% to 35.0% for fiscal year 2015.

Darden retired approximately $900.0 million of long-term debt. This resulted in approximately $80.0 million of expenses, including cash costs for premiums and make-whole amounts, and non-cash charges for hedge and loan cost write-offs. These costs significantly increased net interest expense for the quarter and negatively impacted earnings from continuing operations.