10-QPeriod: Q3 FY2019

DARDEN RESTAURANTS INC Quarterly Report for Q3 Ended Feb 24, 2019

Filed April 2, 2019For Securities:DRI

Summary

Darden Restaurants, Inc. (DRI) reported solid performance for the third quarter and the first nine months of fiscal year 2019, ending February 24, 2019. Total sales increased by 5.5% and 5.6% respectively, driven by same-restaurant sales growth and the addition of new company-owned restaurants. The company demonstrated effective cost management, leading to improved operating income and a significant increase in earnings from continuing operations. Net earnings saw a notable increase of 19.9% for the first nine months of fiscal 2019 compared to the prior year, with diluted earnings per share rising to $4.02. This growth was influenced by a lower effective tax rate stemming from the Tax Cuts and Jobs Act, which provided a substantial benefit in the prior year but continued to offer a favorable rate in the current period. The company also reported positive segment profit margins across its key brands, highlighting strong operational execution.

Financial Highlights

50 data points
Beta

Revenue

$2.25B

20.3% Gross Margin

Net Income

$223.60M

10.0% Net Margin

EPS (Diluted)

$1.79

Total Assets

$5.70B

Cash & Equivalents

$302.90M

Free Cash Flow

$372.20M

Financial Statements
Beta
Revenue$2.25B
Gross Profit$455.20M
Operating Expenses$1.98B
Operating Income$265.50M
Net Income$223.60M
EPS (Basic)$1.81
EPS (Diluted)$1.79
Shares Outstanding (Basic)123.30M
Shares Outstanding (Diluted)125.00M

Key Highlights

  • 1Total sales increased by 5.5% to $2.25 billion for the third quarter and 5.6% to $6.28 billion for the first nine months of fiscal 2019.
  • 2Earnings from continuing operations increased by 3.0% to $225.1 million for the third quarter and 19.0% to $509.9 million for the first nine months.
  • 3Diluted EPS from continuing operations rose to $1.80 for the third quarter and $4.06 for the first nine months.
  • 4Same-restaurant sales grew by 2.8% for both the third quarter and the first nine months of fiscal 2019.
  • 5The company added 39 net new company-owned restaurants since the third quarter of fiscal 2018.
  • 6Operating income saw a significant increase of 13.8% for the quarter and 12.3% for the nine months.
  • 7General and administrative expenses as a percentage of sales decreased due to integration cost savings and sales leverage.

Frequently Asked Questions

Darden's sales growth was driven by a combination of increased same-restaurant sales (2.8% for both the quarter and nine months) and the addition of new company-owned restaurants. The company added 39 net new restaurants since the prior year's third quarter.

The Tax Act had a significant impact, particularly in the prior fiscal year due to a large one-time adjustment to net deferred tax liabilities. For the first nine months of fiscal 2019, the lower federal corporate tax rate of 21.0% provided a positive impact of approximately $0.37 per diluted share compared to the prior year's blended rate. The prior fiscal year benefited by approximately $0.61 per diluted share from deferred tax revaluation.

Darden expects fiscal 2019 sales from continuing operations to increase by approximately 5.5%, driven by same-restaurant sales growth of 2.5% to 2.7% and the addition of 45 to 50 new restaurants. The company anticipates an annual effective tax rate of approximately 10.0% and plans capital expenditures between $425.0 million and $475.0 million.

Darden demonstrated effective cost management. Food and beverage costs as a percentage of sales increased slightly in the quarter but decreased over nine months due to pricing and cost savings, despite some menu mix and inflation impacts. Restaurant labor costs decreased as a percentage of sales in the quarter due to sales leverage and productivity, though inflation was a factor. General and administrative expenses decreased as a percentage of sales, benefiting from integration cost savings from Cheddar's Scratch Kitchen and sales leverage.