10-QPeriod: Q2 FY2019

DARDEN RESTAURANTS INC Quarterly Report for Q2 Ended Nov 25, 2018

Filed January 2, 2019For Securities:DRI

Summary

Darden Restaurants, Inc. reported solid financial results for the six months ended November 25, 2018. Total sales increased by 5.7% to $4.03 billion, driven by same-restaurant sales growth and the addition of new locations. Diluted net earnings per share from continuing operations rose significantly to $2.26, up 36.1% from the prior year's comparable period. This improvement was notably boosted by the lower corporate tax rate resulting from the Tax Cuts and Jobs Act, which provided a $0.30 benefit to EPS for the six-month period. The company demonstrated effective cost management, with total operating costs and expenses increasing by 5.2%, slightly below the sales growth rate. Profitability metrics were strong, with operating income up 11.1% and earnings before income taxes increasing by 14.1%. Darden continues to invest in growth, with capital expenditures for new restaurants and remodels, while also returning capital to shareholders through dividends and share repurchases. The company maintained its investment-grade credit ratings and has ample liquidity through its revolving credit facility.

Financial Highlights

49 data points
Beta

Revenue

$1.97B

16.7% Gross Margin

Net Income

$115.60M

5.9% Net Margin

EPS (Diluted)

$0.92

Total Assets

$5.55B

Cash & Equivalents

$139.70M

Free Cash Flow

$100.90M

Financial Statements
Beta
Revenue$1.97B
Gross Profit$328.70M
Operating Expenses$1.83B
Operating Income$148.10M
Net Income$115.60M
EPS (Basic)$0.93
EPS (Diluted)$0.92
Shares Outstanding (Basic)123.90M
Shares Outstanding (Diluted)125.80M

Key Highlights

  • 1Total sales increased by 5.7% to $4.03 billion for the six months ended November 25, 2018.
  • 2Diluted net earnings per share from continuing operations grew 36.1% to $2.26 for the six-month period.
  • 3The Tax Cuts and Jobs Act favorably impacted EPS by approximately $0.30 for the six-month period.
  • 4Operating income increased by 11.1% to $337.2 million for the six-month period.
  • 5Darden added 40 net new company-owned restaurants since the prior year's second quarter.
  • 6Capital expenditures for the six months ended November 25, 2018, were $233.0 million, reflecting investments in new and existing restaurants.
  • 7The company maintained investment-grade credit ratings from Moody's, S&P, and Fitch.

Frequently Asked Questions

The significant increase in net earnings per share was driven by a combination of factors including sales growth from same-restaurant increases and new restaurant openings, operational efficiencies leading to improved operating income, and a substantial positive impact from the reduction in the U.S. corporate income tax rate due to the Tax Cuts and Jobs Act enacted in December 2017.

Darden Restaurants managed its costs effectively. For the six months ended November 25, 2018, total operating costs and expenses increased by 5.2%, which was slightly below the sales growth rate of 5.7%. Specific cost categories like food and beverage costs and restaurant expenses decreased as a percentage of sales, indicating good cost control and sales leverage.

For fiscal year 2019, Darden expects sales from continuing operations to increase between 5.0% and 5.5%. This is projected to be driven by same-restaurant sales growth of approximately 2.5% and the addition of 45 to 50 new restaurants. Capital expenditures are expected to be between $425.0 million and $475.0 million, primarily for new restaurants, remodels, and technology initiatives.

Darden is returning capital to shareholders through dividends and share repurchases. For the first six months of fiscal 2019, the company paid $186.0 million in dividends and repurchased $92.3 million of its common stock. Dividends per share increased to $1.50 for the first six months of fiscal 2019, up from $1.26 in the prior year's comparable period.