10-QPeriod: Q1 FY2018

DARDEN RESTAURANTS INC Quarterly Report for Q1 Ended Aug 27, 2017

Filed October 3, 2017For Securities:DRI

Summary

Darden Restaurants, Inc. reported a solid first quarter for fiscal year 2018, with total sales increasing by 12.9% to $1.94 billion, primarily driven by the strategic acquisition of Cheddar's Scratch Kitchen and continued growth from new restaurant openings and same-restaurant sales increases across several brands. Diluted earnings per share from continuing operations rose to $0.95, an 8.0% increase year-over-year, demonstrating the company's ability to integrate acquisitions and maintain operational efficiency. The company reaffirmed its outlook for fiscal year 2018, anticipating continued sales growth and expansion. The acquisition of Cheddar's Scratch Kitchen, completed in April 2017, significantly contributed to the top-line growth, adding 140 company-owned restaurants and 25 franchised locations to Darden's portfolio. While integration costs had a slight impact, the overall performance indicates a successful assimilation. Darden continues to focus on enhancing same-restaurant sales through a combination of increased average checks and moderate guest count growth, alongside strategic capital allocation, including dividends and share repurchases.

Financial Highlights

46 data points
Beta

Revenue

$1.94B

18.0% Gross Margin

Net Income

$119.00M

6.1% Net Margin

EPS (Diluted)

$0.93

Total Assets

$5.22B

Cash & Equivalents

$146.80M

Free Cash Flow

$83.70M

Financial Statements
Beta
Revenue$1.94B
Gross Profit$347.80M
Operating Expenses$1.76B
Operating Income$174.50M
Net Income$119.00M
EPS (Basic)$0.95
EPS (Diluted)$0.93
Shares Outstanding (Basic)125.20M
Shares Outstanding (Diluted)127.30M

Key Highlights

  • 1Total sales for the quarter increased by 12.9% to $1.94 billion, largely due to the acquisition of Cheddar's Scratch Kitchen.
  • 2Diluted earnings per share (EPS) from continuing operations grew 8.0% to $0.95 compared to the prior year's $0.88.
  • 3Same-restaurant sales for Darden brands (excluding Cheddar's) increased by 1.7%, with notable strength in LongHorn Steakhouse (2.6%) and Eddie V's (2.5%).
  • 4The company incurred integration costs of approximately $6.4 million related to the Cheddar's Scratch Kitchen acquisition.
  • 5Capital expenditures increased to $95.7 million, reflecting investments in new restaurant construction and remodels.
  • 6Darden declared a dividend of $0.63 per share, up from $0.56 in the prior year's comparable quarter.
  • 7The company maintained strong credit ratings (Baa3/BBB/BBB) and had no outstanding balances under its $750 million revolving credit facility.

Frequently Asked Questions

The primary driver of the significant sales increase was the acquisition of Cheddar's Scratch Kitchen, which added 140 company-owned and 25 franchised restaurants to Darden's portfolio. This, combined with organic growth from new restaurant openings and same-restaurant sales increases across other brands, contributed to the 12.9% overall sales growth.

While the acquisition boosted sales, it also incurred integration costs of approximately $6.4 million, which were included in general and administrative expenses. Despite these costs, net earnings from continuing operations increased, and diluted EPS grew by 8.0%, indicating effective management of the integration and operational efficiencies in other areas.

Darden expects combined same-restaurant sales to increase between 1.0% and 2.0% for fiscal year 2018. Total sales from continuing operations are projected to grow between 11.5% and 13.0%, inclusive of Cheddar's Scratch Kitchen. The company plans to open approximately 35 to 40 new restaurants and anticipates capital expenditures between $400.0 million and $450.0 million.

Darden's primary source of liquidity is cash flow from operations, which increased in this quarter. The company also utilizes debt financing and has a $750 million revolving credit facility, which remained undrawn. Darden paid dividends of $79.1 million and repurchased $100.2 million in common stock during the quarter, demonstrating a balanced approach to returning capital to shareholders and investing in the business.