10-QPeriod: Q2 FY2018

DARDEN RESTAURANTS INC Quarterly Report for Q2 Ended Nov 26, 2017

Filed January 3, 2018For Securities:DRI

Summary

Darden Restaurants, Inc. reported solid financial results for the second quarter and first half of fiscal year 2018, demonstrating continued growth and operational strength. Sales increased significantly, driven by the strategic acquisition of Cheddar's Scratch Kitchen and robust same-restaurant sales growth across key brands like Olive Garden and LongHorn Steakhouse. The company also benefited from an expanding restaurant base, reflecting successful new unit development. Profitability remained strong, with earnings from continuing operations and diluted EPS showing notable year-over-year increases. Management highlighted effective cost management initiatives and pricing strategies that helped offset some cost pressures, such as rising labor expenses. Furthermore, the company anticipates continued sales growth and expansion in fiscal year 2018, supported by plans for new restaurant openings and capital expenditures aimed at enhancing operational capabilities and guest experience. Investors can find confidence in Darden's strategic execution, brand strength, and outlook for continued shareholder returns.

Financial Highlights

48 data points
Beta

Revenue

$1.88B

16.3% Gross Margin

Net Income

$84.70M

4.5% Net Margin

EPS (Diluted)

$0.67

Total Assets

$5.32B

Cash & Equivalents

$114.70M

Free Cash Flow

$32.70M

Financial Statements
Beta
Revenue$1.88B
Gross Profit$306.60M
Operating Expenses$1.75B
Operating Income$128.90M
Net Income$84.70M
EPS (Basic)$0.69
EPS (Diluted)$0.67
Shares Outstanding (Basic)123.60M
Shares Outstanding (Diluted)125.50M

Key Highlights

  • 1Total sales increased by 14.6% in the second quarter and 13.7% in the first six months of fiscal 2018 compared to the prior year, largely due to the acquisition of Cheddar's Scratch Kitchen and same-restaurant sales growth.
  • 2Earnings from continuing operations grew by 11.2% in Q2 and 10.0% in the first six months of fiscal 2018, indicating effective operational management.
  • 3Diluted EPS from continuing operations rose to $0.71 in Q2 and $1.66 in the first six months, reflecting improved profitability.
  • 4Same-restaurant sales, excluding Cheddar's, increased by 3.1% in Q2 and 2.4% in the first six months, demonstrating organic growth in established brands.
  • 5The company acquired 151 Cheddar's Scratch Kitchen restaurants, significantly expanding its portfolio and contributing to sales growth.
  • 6Operating income margin for the quarter was 6.9% and 7.9% for the six months, showing stable to improving operational efficiency.
  • 7Darden plans to open approximately 40 new restaurants in fiscal 2018, indicating continued investment in expansion.

Frequently Asked Questions

The primary driver of the significant sales increase was the acquisition of Cheddar's Scratch Kitchen, which contributed revenue from 151 restaurants. Additionally, same-restaurant sales increases across Darden's existing brands and the addition of new company-owned restaurants also contributed to the growth.

While the Cheddar's acquisition boosted overall sales, its integration incurred approximately $4.2 million in expenses during the quarter and $10.6 million for the six months, included in general and administrative expenses. Diluted EPS from continuing operations was adversely impacted by approximately $0.02 and $0.06 for the quarter and six months, respectively, due to these integration costs.

Darden expects combined same-restaurant sales, excluding Cheddar's Scratch Kitchen, to increase approximately 2.0 percent for the full fiscal year 2018.

The company is managing rising costs through pricing and cost-saving initiatives. For instance, food and beverage costs decreased as a percentage of sales due to these efforts, though restaurant labor costs increased as a percentage of sales due to wage inflation and the impact of Cheddar's higher labor costs relative to legacy brands.