10-QPeriod: Q1 FY2023

DARDEN RESTAURANTS INC Quarterly Report for Q1 Ended Aug 28, 2022

Filed October 4, 2022For Securities:DRI

Summary

Darden Restaurants, Inc. (DRI) reported its first quarter fiscal year 2023 results, with total sales reaching $2.45 billion, a 6.1% increase year-over-year. This growth was driven by a blended same-restaurant sales increase of 4.2% and the addition of 34 net new restaurants. However, net earnings from continuing operations decreased to $193.6 million from $231.7 million in the prior year's comparable quarter, resulting in a diluted EPS of $1.56, down from $1.76. The company faced increased cost pressures, particularly in food and beverage (up 16.0%) and restaurant labor (up 7.9%), which contributed to a decline in operating income and segment profit margins across all reporting segments. Despite these cost challenges, Darden maintained a strong outlook for fiscal year 2023, projecting sales between $10.2 and $10.4 billion, supported by anticipated same-restaurant sales growth of 4-6% and the opening of 55-60 new restaurants.

Financial Highlights

45 data points
Beta

Revenue

$2.45B

17.3% Gross Margin

Net Income

$193.00M

7.9% Net Margin

EPS (Diluted)

$1.56

Total Assets

$10.01B

Cash & Equivalents

$377.50M

Free Cash Flow

$305.00M

Financial Statements
Beta
Revenue$2.45B
Gross Profit$423.20M
Operating Expenses$2.20B
Operating Income$244.20M
Net Income$193.00M
EPS (Basic)$1.57
EPS (Diluted)$1.56
Shares Outstanding (Basic)122.90M
Shares Outstanding (Diluted)123.90M

Key Highlights

  • 1Total sales increased by 6.1% to $2.45 billion, driven by same-restaurant sales growth and new restaurant openings.
  • 2Net earnings from continuing operations declined by 16.4% to $193.6 million, impacting diluted EPS to $1.56 from $1.76 year-over-year.
  • 3Significant cost increases were observed in food and beverage (up 16.0%) and restaurant labor (up 7.9%), putting pressure on margins.
  • 4Segment profit margins decreased across all four reporting segments (Olive Garden, LongHorn Steakhouse, Fine Dining, and Other Business) due to rising costs.
  • 5The company plans to open 55-60 new restaurants and is projecting sales between $10.2 and $10.4 billion for fiscal year 2023.
  • 6Darden continued its share repurchase program, with $199.0 million in repurchases during the quarter, under a new $1 billion authorization.

Frequently Asked Questions

The decrease in net earnings was primarily driven by significant increases in operating costs, specifically food and beverage costs which rose 16.0% and restaurant labor costs which increased by 7.9%. These higher costs, attributed to inflation and supply chain issues, outpaced the sales growth and pricing leverage, leading to compressed operating margins.

Darden is employing several strategies to combat rising costs. They are implementing pricing increases, focusing on menu mix optimization, and leveraging sales growth to offset some of the inflationary impact. The company is also focused on operational efficiencies and has noted the impact of pricing as a partial offset to food and beverage cost inflation.

Darden has a positive outlook for fiscal year 2023, projecting total sales in the range of $10.2 to $10.4 billion. This guidance is supported by an expected same-restaurant sales growth of 4% to 6% and the planned opening of 55 to 60 new restaurants.

Darden's primary source of liquidity is cash generated from operations. The company is investing in growth through capital expenditures for new restaurants and remodels, totaling $500-$550 million for FY2023. Additionally, Darden continues to return capital to shareholders through dividends and share repurchases. In the reported quarter, they paid $148.5 million in dividends and repurchased $199.0 million of stock under a new $1 billion authorization.