10-QPeriod: Q1 FY2019

DARDEN RESTAURANTS INC Quarterly Report for Q1 Ended Aug 26, 2018

Filed October 2, 2018For Securities:DRI

Summary

Darden Restaurants, Inc. reported strong financial results for the first quarter of fiscal year 2019, showcasing a significant increase in sales and net earnings. Total sales grew by 6.5% year-over-year, driven by a combination of same-restaurant sales increases across most brands and the addition of new company-owned restaurants. This top-line growth translated into a substantial improvement in profitability, with diluted net earnings per share from continuing operations rising by 41.1% to $1.34. The company benefited from favorable tax reforms, which lowered its effective income tax rate significantly. Management highlighted operational efficiencies and strategic initiatives contributing to margin improvements, particularly in food and beverage costs. Darden also continued its capital allocation strategy, demonstrating commitment to shareholder returns through dividends and share repurchases, while investing in new restaurant development and remodeling.

Financial Highlights

47 data points
Beta

Revenue

$2.06B

18.2% Gross Margin

Net Income

$166.20M

8.1% Net Margin

EPS (Diluted)

$1.32

Total Assets

$5.50B

Cash & Equivalents

$151.80M

Free Cash Flow

$100.00M

Financial Statements
Beta
Revenue$2.06B
Gross Profit$374.40M
Operating Expenses$1.87B
Operating Income$189.10M
Net Income$166.20M
EPS (Basic)$1.34
EPS (Diluted)$1.32
Shares Outstanding (Basic)123.80M
Shares Outstanding (Diluted)125.80M

Key Highlights

  • 1Total sales increased by 6.5% to $2.06 billion compared to the prior year period.
  • 2Diluted net earnings per share from continuing operations surged by 41.1% to $1.34.
  • 3Same-restaurant sales increased by 3.3% overall, with strong performance in Olive Garden (5.3%) and LongHorn Steakhouse (3.1%).
  • 4The effective income tax rate decreased substantially to 4.0% from 23.9% in the prior year, largely due to the Tax Cuts and Jobs Act.
  • 5The company opened 41 net new company-owned restaurants since the prior year, contributing to sales growth.
  • 6Operating income increased by 8.4% to $189.1 million.
  • 7Dividends paid increased to $93.0 million from $79.1 million in the prior year's comparable quarter.

Frequently Asked Questions

Sales growth was driven by a combination of factors: a 3.3% increase in same-restaurant sales across the portfolio (though Cheddar's Scratch Kitchen and Seasons 52 experienced decreases), revenue from 41 net new company-owned restaurants added since the prior year, and the inclusion of 11 Cheddar's Scratch Kitchen restaurants acquired in the second quarter of fiscal 2018.

The Tax Cuts and Jobs Act, enacted in December 2017, significantly reduced the federal corporate income tax rate from 35% to 21%. This resulted in a lower effective income tax rate for the quarter, down to 4.0% from 23.9% in the prior year, which positively impacted net earnings per share by approximately $0.14.

For fiscal year 2019, Darden expects sales from continuing operations to grow between 5.0% and 5.5%. This growth is projected to come from a same-restaurant sales increase of 2.0% to 2.5% and the opening of approximately 45 to 50 new restaurants.

Darden achieved a reduction in food and beverage costs as a percentage of sales due to cost savings initiatives and pricing, partially offset by menu mix. Restaurant labor costs increased as a percentage of sales primarily due to inflation and workforce investments. Restaurant expenses decreased as a percentage of sales due to sales leverage. Marketing expenses also decreased as a percentage of sales due to sales leverage.