10-QPeriod: Q3 FY2023

DARDEN RESTAURANTS INC Quarterly Report for Q3 Ended Feb 26, 2023

Filed April 4, 2023For Securities:DRI

Summary

Darden Restaurants, Inc. reported a solid third quarter and nine-month performance for fiscal year 2023, demonstrating robust sales growth driven by both increased average checks and a growing number of restaurants. Total sales for the quarter increased by 13.8% to $2.79 billion, with nine-month sales up 9.8% to $7.72 billion, benefiting from same-restaurant sales growth across all segments. The company highlighted an 11.7% increase in same-restaurant sales for the quarter and a 7.8% increase for the nine months. While topline growth was strong, the company faced persistent inflation in food and beverage costs, which notably impacted profit margins, particularly for the nine-month period. Despite these cost pressures, Darden managed restaurant labor and expenses effectively, leading to operating income growth for the quarter. Diluted EPS from continuing operations saw a significant increase of 21.2% for the quarter, reaching $2.34, and a more modest 4.8% increase for the nine months to $5.42. The company reaffirmed its positive outlook for fiscal year 2023, projecting sales between $10.45 and $10.5 billion.

Financial Highlights

46 data points
Beta

Revenue

$2.79B

20.0% Gross Margin

Net Income

$286.60M

10.3% Net Margin

EPS (Diluted)

$2.34

Total Assets

$10.08B

Cash & Equivalents

$275.30M

Free Cash Flow

$374.70M

Financial Statements
Beta
Revenue$2.79B
Gross Profit$556.50M
Operating Expenses$2.44B
Operating Income$349.90M
Net Income$286.60M
EPS (Basic)$2.36
EPS (Diluted)$2.34
Shares Outstanding (Basic)121.40M
Shares Outstanding (Diluted)122.50M

Key Highlights

  • 1Total sales for the third quarter increased by 13.8% to $2.79 billion, and for the nine months by 9.8% to $7.72 billion, driven by same-restaurant sales growth and new restaurant openings.
  • 2Same-restaurant sales increased by 11.7% for the quarter and 7.8% for the nine months, with positive contributions from average check increases across all major brands.
  • 3Diluted earnings per share (EPS) from continuing operations rose significantly by 21.2% to $2.34 for the quarter, and by 4.8% to $5.42 for the nine months.
  • 4Food and beverage costs increased as a percentage of sales, particularly impacting profit margins over the nine-month period, mainly due to inflation.
  • 5Restaurant labor costs as a percentage of sales decreased for both the quarter and nine months due to sales leverage, partially offsetting inflation.
  • 6The company expanded its restaurant footprint with 35 net new restaurants opened in the 12 months leading up to February 26, 2023, and plans for approximately 55 new openings in fiscal year 2023.
  • 7Darden reaffirmed its fiscal year 2023 sales outlook of $10.45 billion to $10.5 billion and anticipates capital expenditures of $550 million to $575 million.

Frequently Asked Questions

Sales growth was driven by a combination of same-restaurant sales increases, which were strong across all brands, and the addition of new restaurants. For the quarter, same-restaurant sales grew 11.7%, with increases in both average check and guest counts. For the nine months, same-restaurant sales grew 7.8%, primarily due to an increase in average check.

Inflation, particularly in food and beverage costs, presented a challenge. Food and beverage costs increased as a percentage of sales, driven by a significant impact from inflation (2.7% for the quarter, 3.7% for the nine months). While pricing actions and sales leverage helped to mitigate some of these impacts, they did affect profit margins, especially over the nine-month period.

Darden Restaurants provided a positive outlook, projecting total sales for fiscal year 2023 to be between $10.45 billion and $10.5 billion. This is expected to be driven by same-restaurant sales growth of 6.5% to 7.0% and the opening of approximately 55 new restaurants. The company also anticipates capital expenditures in the range of $550 million to $575 million for new restaurants, remodels, and technology.

Restaurant labor costs decreased as a percentage of sales for both the quarter and nine months ended February 26, 2023. This was primarily attributed to sales leverage, which allowed the company to spread labor costs over a larger revenue base. This was partially offset by inflation in labor costs.