10-QPeriod: Q2 FY2015

DARDEN RESTAURANTS INC Quarterly Report for Q2 Ended Nov 23, 2014

Filed December 31, 2014For Securities:DRI

Summary

Darden Restaurants, Inc. reported a net loss of $32.8 million for the three months ended November 23, 2014, compared to a net earning of $19.8 million in the prior year period. This loss was significantly influenced by a substantial gain from the sale of Red Lobster, which resulted in a net earning of $470.4 million for the six-month period ended November 23, 2014, despite a net loss of $30.8 million from continuing operations in the most recent quarter. The company experienced an increase in sales from continuing operations, driven by new restaurant openings and positive same-restaurant sales at several of its brands, including LongHorn Steakhouse and a blended increase across its higher-end brands. However, the company also incurred significant charges, including asset impairments, workforce reduction costs, and costs associated with shareholder activism and debt retirement, which negatively impacted earnings from continuing operations. Key strategic actions include the successful sale of Red Lobster, generating substantial proceeds and simplifying the company's portfolio. Darden is focused on optimizing its remaining brands, with plans for continued store growth. Despite the reported net loss in the quarter, the company's financial position remains supported by operating cash flows and a strong credit facility. Investors should monitor the integration of the remaining brands and the impact of ongoing strategic initiatives on future profitability.

Financial Highlights

50 data points
Beta

Revenue

$1.56B

14.6% Gross Margin

Net Income

-$32.80M

-2.1% Net Margin

EPS (Diluted)

$-0.26

Total Assets

$5.79B

Cash & Equivalents

$157.50M

Free Cash Flow

$35.20M

Financial Statements
Beta
Revenue$1.56B
Cost of Revenue$1.27B
Gross Profit$227.40M
SG&A Expenses$190.40M
Operating Expenses$1.58B
Operating Income-$20.90M
Net Income-$32.80M
EPS (Basic)$-0.26
EPS (Diluted)$-0.26
Shares Outstanding (Basic)127.70M
Shares Outstanding (Diluted)127.70M

Key Highlights

  • 1Net loss of $32.8 million for the three months ended November 23, 2014, compared to a net gain of $19.8 million in the prior year period.
  • 2Significant gain on sale of Red Lobster ($816.6 million pre-tax) contributing to a net earning of $470.4 million for the six months ended November 23, 2014.
  • 3Sales from continuing operations increased by 4.9% in the second quarter and 4.6% in the first six months, driven by new restaurant openings and same-restaurant sales growth at LongHorn Steakhouse and other brands.
  • 4Operating expenses as a percentage of sales increased from 99.9% to 103.5% for the quarter, and from 98.3% to 103.1% for the six-month period, negatively impacting profitability from continuing operations.
  • 5Incurred significant charges including asset impairments ($39.7 million in the quarter), workforce reduction costs, and costs related to shareholder activism and debt retirement.
  • 6Cash flows from operating activities of continuing operations were $197.9 million for the six months ended November 23, 2014.
  • 7The company completed the retirement of approximately $1.00 billion in long-term debt during the first six months of fiscal 2015.

Frequently Asked Questions

The primary driver of the significant increase in net earnings to $470.4 million for the six months ended November 23, 2014, is the substantial pre-tax gain of $816.6 million recognized from the sale of Red Lobster.

Darden Restaurants reported a net loss of $30.8 million from continuing operations for the three months ended November 23, 2014, due to several factors including approximately $0.52 per diluted share in adverse impacts, such as severance and other costs, restaurant-related asset impairments, lease buy-outs, legal and advisory fees related to shareholder activism, impairment of assets related to the lobster aquaculture project, and debt breakage costs.

The sale of Red Lobster, which closed on July 28, 2014, generated $2.08 billion in cash proceeds. This divestiture has simplified the company's portfolio and, while a significant gain was recorded, it also led to the reclassification of associated assets and liabilities. The company has also incurred costs related to the separation and ongoing contractual requirements for some remaining properties.

For fiscal year 2015, Darden expects same-restaurant sales to range from even to an increase of 1.0 percent for Olive Garden, and an increase of 2.0 percent to 3.0 percent for LongHorn Steakhouse. A blended same-restaurant sales increase of approximately 2.0 percent to 3.0 percent is expected for The Capital Grille, Bahama Breeze, Seasons 52, Eddie V's, and Yard House.