10-QPeriod: Q2 FY2023

DARDEN RESTAURANTS INC Quarterly Report for Q2 Ended Nov 27, 2022

Filed January 4, 2023For Securities:DRI

Summary

Darden Restaurants, Inc. reported a 9.4% increase in sales for the second quarter and a 7.7% increase for the first six months of fiscal 2023 compared to the prior year, reaching $2.49 billion and $4.93 billion, respectively. This growth was driven by a combination of same-restaurant sales increases and contributions from new restaurant openings across its various brands, including Olive Garden and LongHorn Steakhouse. Despite top-line growth, net earnings from continuing operations saw a slight decrease, with diluted EPS also declining year-over-year for the six-month period, largely due to increased operating costs such as food and beverage, and restaurant labor, which outpaced pricing and sales leverage. Profitability was impacted by inflationary pressures on food and beverage costs (up 3.7% as a percentage of sales for the quarter) and labor costs. The company also noted a decrease in customer traffic in some segments, offset by increases in average check size. Darden provided an optimistic outlook for fiscal year 2023, expecting sales between $10.3 and $10.45 billion, with continued same-restaurant sales growth and new restaurant openings. The company also reiterated its commitment to shareholder returns through dividends and an ongoing share repurchase program.

Financial Highlights

47 data points
Beta

Revenue

$2.49B

16.6% Gross Margin

Net Income

$187.20M

7.5% Net Margin

EPS (Diluted)

$1.52

Total Assets

$10.03B

Cash & Equivalents

$240.70M

Free Cash Flow

$50.30M

Financial Statements
Beta
Revenue$2.49B
Gross Profit$411.60M
Operating Expenses$2.25B
Operating Income$233.20M
Net Income$187.20M
EPS (Basic)$1.53
EPS (Diluted)$1.52
Shares Outstanding (Basic)122.10M
Shares Outstanding (Diluted)123.10M

Key Highlights

  • 1Total sales increased by 9.4% to $2.49 billion in Q2 FY23 and by 7.7% to $4.93 billion for the first six months of FY23, year-over-year.
  • 2Net earnings from continuing operations decreased slightly to $187.5 million in Q2 FY23 and $381.1 million for the first six months, compared to $193.4 million and $425.1 million in the prior year periods.
  • 3Diluted EPS from continuing operations was $1.52 in Q2 FY23, an increase from $1.48 in the prior year, but decreased to $3.09 for the first six months from $3.24.
  • 4Food and beverage costs increased as a percentage of sales due to inflation (3.7% impact in Q2), outpacing pricing benefits.
  • 5Restaurant labor costs as a percentage of sales saw mixed impacts, with pricing and sales leverage partially offset by inflation (1.3% impact in Q2).
  • 6The company opened 35 net new restaurants during the first six months of FY23 and expects to open 55-60 new restaurants in FY23.
  • 7Darden provided a positive outlook for FY23, projecting sales between $10.3 and $10.45 billion, with same-restaurant sales growth of 5.0% to 6.5%.

Frequently Asked Questions

Sales growth was driven by a combination of same-restaurant sales increases (7.3% in Q2 FY23) and the addition of 35 net new restaurants opened during the first six months of fiscal 2023.

Profitability was impacted by inflationary pressures on food and beverage costs and restaurant labor, which increased as a percentage of sales. While pricing strategies and sales leverage helped mitigate some of these impacts, they did not fully offset the rising costs.

Darden continues to return capital to shareholders through dividend payments and an active share repurchase program. The company repurchased approximately $299.2 million worth of stock in the first six months of fiscal 2023 under a new $1 billion repurchase authorization.

Darden anticipates total sales for fiscal year 2023 to be between $10.3 and $10.45 billion, supported by projected same-restaurant sales growth of 5.0% to 6.5% and the opening of 55 to 60 new restaurants.