10-QPeriod: Q2 FY2022

DARDEN RESTAURANTS INC Quarterly Report for Q2 Ended Nov 28, 2021

Filed January 5, 2022For Securities:DRI

Summary

Darden Restaurants, Inc. reported a strong financial performance for the fiscal second quarter and first six months ended November 28, 2021. Sales significantly increased year-over-year, driven by robust same-restaurant sales growth across all segments and the addition of new restaurants. This top-line growth translated into substantial improvements in operating income and net earnings, with diluted EPS also showing a marked increase compared to the prior year period, which was impacted by the COVID-19 pandemic. The company's strategic focus on driving guest traffic and managing costs appears to be yielding positive results. While certain cost categories like food and beverage and labor saw inflationary pressures, these were largely offset by sales leverage and pricing initiatives. Darden also demonstrated a commitment to shareholder returns through significant share repurchases and dividend payments, while maintaining a strong liquidity position and investment-grade credit ratings.

Financial Highlights

45 data points
Beta

Revenue

$2.27B

18.8% Gross Margin

Net Income

$193.20M

8.5% Net Margin

EPS (Diluted)

$1.48

Total Assets

$10.40B

Cash & Equivalents

$746.30M

Free Cash Flow

$210.60M

Financial Statements
Beta
Revenue$2.27B
Gross Profit$426.40M
Operating Expenses$2.03B
Operating Income$242.60M
Net Income$193.20M
EPS (Basic)$1.50
EPS (Diluted)$1.48
Shares Outstanding (Basic)129.20M
Shares Outstanding (Diluted)130.50M

Key Highlights

  • 1Total sales increased by 37.2% in Q2 FY2022 and 43.8% in the first six months of FY2022 compared to the prior year periods, indicating a strong recovery and growth trajectory.
  • 2Diluted earnings per share from continuing operations significantly improved to $1.48 in Q2 FY2022 and $3.24 in the first six months of FY2022, up from $0.74 and $1.02, respectively, in the prior year.
  • 3Same-restaurant sales growth was robust across all segments, with Olive Garden, LongHorn Steakhouse, Fine Dining, and Other Business segments all reporting double-digit increases.
  • 4The company repurchased approximately $452.3 million of common stock in the first six months of FY2022, demonstrating a commitment to returning capital to shareholders.
  • 5Operating income more than doubled year-over-year for both the second quarter and the first six months, highlighting improved profitability.
  • 6The company provided an optimistic outlook for fiscal 2022, projecting sales between $9.6 and $9.7 billion, driven by continued same-restaurant sales growth and new restaurant openings.

Frequently Asked Questions

Darden's sales performance showed significant improvement. For the second quarter of fiscal 2022, sales increased by 37.2% to $2.27 billion, and for the first six months, sales rose by 43.8% to $4.58 billion, compared to the respective periods in fiscal 2021. This growth was primarily driven by a strong rebound in same-restaurant sales across all brands (34.4% in Q2 and 40.7% in the first six months) and the addition of 34 net new company-owned restaurants since the prior year.

Profitability has seen substantial improvement. Operating income more than doubled year-over-year for both the second quarter and the first six months of fiscal 2022. This strong operating performance, coupled with effective cost management despite some inflationary pressures, led to a significant increase in net earnings and diluted earnings per share (EPS) from continuing operations. Diluted EPS grew from $0.74 in Q2 FY2021 to $1.48 in Q2 FY2022, and from $1.02 to $3.24 for the first six months of the respective fiscal years.

Darden's growth strategy for fiscal 2022 includes projected sales of $9.6 to $9.7 billion, driven by expected same-restaurant sales growth of 29% to 31% and the opening of 35 to 40 net new restaurants. The company also remains committed to shareholder returns, as evidenced by its share repurchase program and dividend payments. In the first six months of fiscal 2022, Darden repurchased approximately $452.3 million of common stock and paid dividends totaling $286.1 million.

Darden experienced cost pressures, particularly in food and beverage costs (up 30.5% of sales in Q2 FY2022) and restaurant labor costs (up 32.8% of sales in Q2 FY2022), driven by inflation. However, these increases were largely offset by sales leverage and pricing strategies. For instance, food and beverage costs as a percentage of sales were managed through pricing leverage, and restaurant labor costs benefited from sales leverage despite inflationary impacts. The company's overall operating costs as a percentage of sales decreased from 92.7% in Q2 FY2021 to 89.3% in Q2 FY2022, indicating effective cost management relative to sales growth.