10-QPeriod: Q3 FY2020

DARDEN RESTAURANTS INC Quarterly Report for Q3 Ended Feb 23, 2020

Filed March 31, 2020For Securities:DRI

Summary

Darden Restaurants, Inc. (DRI) reported its financial results for the third quarter and the first nine months ended February 23, 2020. For the third quarter, the company saw a 4.5% increase in sales to $2.35 billion, driven by new restaurant openings and same-restaurant sales growth. Net earnings from continuing operations increased to $233.3 million, with diluted EPS at $1.90. However, for the first nine months, net earnings from continuing operations decreased by 15.6% to $430.5 million, and diluted EPS fell to $3.48, largely due to a significant pension settlement charge and an international structure simplification. The report also highlights the emerging impact of the COVID-19 pandemic, which began to significantly affect operations in March 2020. In response, Darden suspended its quarterly dividend, drew down its full $750 million revolving credit facility, and paused share repurchases to ensure liquidity. The company withdrew its full-year financial outlook due to the high level of uncertainty surrounding the pandemic's impact on the business, consumer behavior, and the broader economy. Management has shifted to a "To Go" and delivery-only model for most restaurants.

Financial Highlights

47 data points
Beta

Revenue

$2.35B

19.9% Gross Margin

Net Income

$232.30M

9.9% Net Margin

EPS (Diluted)

$1.89

Total Assets

$9.97B

Cash & Equivalents

$321.70M

Free Cash Flow

$361.30M

Financial Statements
Beta
Revenue$2.35B
Gross Profit$466.40M
Operating Expenses$2.07B
Operating Income$278.30M
Net Income$232.30M
EPS (Basic)$1.92
EPS (Diluted)$1.89
Shares Outstanding (Basic)121.30M
Shares Outstanding (Diluted)122.80M

Key Highlights

  • 1Sales for the third quarter increased by 4.5% to $2.35 billion, reflecting growth from new restaurant additions and same-restaurant sales.
  • 2Diluted EPS from continuing operations for the third quarter rose to $1.90 from $1.80 in the prior year.
  • 3For the first nine months, net earnings from continuing operations decreased by 15.6% to $430.5 million, impacted by a $147.1 million pension settlement charge.
  • 4Diluted EPS from continuing operations for the first nine months decreased to $3.48 from $4.06 in the prior year, heavily influenced by the pension settlement charge.
  • 5The company has suspended its quarterly cash dividend and fully drawn down its $750 million revolving credit facility due to the COVID-19 outbreak.
  • 6Darden Restaurants withdrew its full-year financial outlook for fiscal 2020 due to the significant uncertainty surrounding the COVID-19 pandemic.
  • 7The company transitioned to a "To Go" and delivery-only model for most restaurants in response to COVID-19 restrictions.

Frequently Asked Questions

The primary drivers for the sales increase in the third quarter were revenue from 40 net new company-owned restaurants and a combined Darden same-restaurant sales increase of 2.3%.

The significant decrease in net earnings for the first nine months was primarily due to a pre-tax pension settlement charge of $147.1 million resulting from the termination of Darden's primary defined benefit pension plan, along with an international structure simplification.

The COVID-19 outbreak led to a significant reduction in guest traffic, prompting Darden to close dining rooms and operate primarily on a "To Go" or delivery model. In response to preserve liquidity and financial flexibility, the company suspended its dividend, drew down its full $750 million revolving credit facility, and paused share repurchases. Consequently, Darden withdrew its full-year financial outlook due to the high uncertainty.

Darden is managing its business to target an investment-grade bond rating. To ensure liquidity amid the COVID-19 uncertainty, they have fully drawn on their $750 million revolving credit facility. They also have publicly issued long-term debt and maintain credit ratings from Moody's, S&P, and Fitch.