10-QPeriod: Q1 FY2024

DARDEN RESTAURANTS INC Quarterly Report for Q1 Ended Aug 27, 2023

Filed September 29, 2023For Securities:DRI

Summary

Darden Restaurants, Inc. reported strong top-line growth in the first quarter of fiscal year 2024, with total sales increasing by 11.6% to $2.73 billion. This growth was driven by a blend of a 5.0% same-restaurant sales increase across most brands and the significant addition of 77 Ruth's Chris Steak House locations acquired in June 2023. Net earnings from continuing operations remained relatively stable at $194.8 million, leading to diluted EPS of $1.60, a slight increase from the prior year. The company has outlined a positive outlook for fiscal year 2024, anticipating sales between $11.5 and $11.6 billion, supported by continued same-restaurant sales growth and approximately 50 new restaurant openings. The acquisition of Ruth's Chris Steak House significantly impacted the financial statements, contributing to a substantial increase in assets, liabilities, and general and administrative expenses due to integration costs. While sales for the 'Fine Dining' segment (which includes Ruth's Chris) saw a large percentage increase due to the acquisition, it experienced a decline in same-restaurant sales, contrasting with positive performance in Olive Garden and LongHorn Steakhouse. Investors should monitor the integration progress and performance of Ruth's Chris, as well as overall cost management, particularly with increased G&A expenses and marketing investments.

Financial Highlights

46 data points
Beta

Revenue

$2.73B

19.0% Gross Margin

Net Income

$194.50M

7.1% Net Margin

EPS (Diluted)

$1.59

Total Assets

$11.27B

Cash & Equivalents

$192.10M

Free Cash Flow

$118.20M

Financial Statements
Beta
Revenue$2.73B
Gross Profit$519.10M
Operating Expenses$2.48B
Operating Income$252.90M
Net Income$194.50M
EPS (Basic)$1.61
EPS (Diluted)$1.59
Shares Outstanding (Basic)120.90M
Shares Outstanding (Diluted)122.00M

Key Highlights

  • 1Total sales increased 11.6% to $2.73 billion, driven by same-restaurant sales growth of 5.0% and the acquisition of Ruth's Chris Steak House.
  • 2Net earnings from continuing operations were $194.8 million, with diluted EPS of $1.60, showing slight year-over-year improvement.
  • 3The acquisition of Ruth's Chris Steak House added 77 company-owned locations and $339.5 million in goodwill.
  • 4Olive Garden and LongHorn Steakhouse demonstrated strong same-restaurant sales growth of 6.1% and 8.1%, respectively.
  • 5The 'Fine Dining' segment, now including Ruth's Chris, saw a 49.1% sales increase but experienced a 2.8% decline in same-restaurant sales.
  • 6General and administrative expenses increased significantly (73.6%) due to Ruth's Chris transaction and integration costs, as well as incentive pay and stock compensation.
  • 7The company projects fiscal year 2024 sales between $11.5 and $11.6 billion, with plans for approximately 50 new restaurant openings.

Frequently Asked Questions

The acquisition of Ruth's Chris Steak House, completed on June 14, 2023, significantly boosted total sales by adding 77 company-owned locations. This contributed to an increase in total assets and liabilities, as well as a substantial rise in general and administrative expenses due to integration costs ($24.8 million) and increased goodwill ($339.5 million) and trademark ($341.7 million) values.

Darden Restaurants anticipates fiscal year 2024 sales to be in the range of $11.5 to $11.6 billion. This forecast is supported by an expected same-restaurant sales growth of 2.5% to 3.5% (excluding Ruth's Chris) and the opening of approximately 50 new restaurants, including those from Ruth's Chris.

Olive Garden and LongHorn Steakhouse are showing strong performance with same-restaurant sales increases of 6.1% and 8.1%, respectively. The 'Other Business' segment also saw positive same-restaurant sales growth of 1.7%. However, the 'Fine Dining' segment, now including Ruth's Chris, experienced a 2.8% decrease in same-restaurant sales, largely due to the integration of the newly acquired brand, though overall segment sales increased significantly due to the acquisition itself.

While food and beverage costs, restaurant labor, and restaurant expenses decreased as a percentage of sales due to pricing leverage and sales volumes, overall General and Administrative (G&A) expenses saw a substantial increase of 73.6% year-over-year. This was primarily driven by $24.8 million in transaction and integration costs related to Ruth's Chris, as well as higher incentive pay and stock-based compensation.