Darden Restaurants Reports Second Quarter Results

ORLANDO, Fla., Dec. 16, 2014 (hospitalitybuisnessnews.com) — Darden Restaurants, Inc. today reported its financial results for the second quarter ended November 23, 2014.

Key highlights for the second quarter include:

  • Second quarter total sales from continuing operations were $1.56 billion, a 4.9% increase from the $1.49 billion generated in the second quarter of last year.
  • Earnings per diluted share from continuing operations on an adjusted basis were $0.28, a 133% increase from the adjusted earnings of $0.12 in the second quarter last year.*
  • On a GAAP basis, diluted net loss per share from continuing operations was $0.24, compared to the $0.05 earnings per diluted share last year.
  • Comparable same-restaurant sales for the quarter were:
      • +0.5% for Olive Garden,
      • +2.6% for LongHorn Steakhouse,
      • +5.0% for The Capital Grille,
      • +4.9% for Eddie V’s,
      • +3.7% for Yard House,
      • +1.2% for Seasons 52, and
      • -0.6% for Bahama Breeze
  • The Company tightened its current projected range for adjusted diluted net earnings per share from continuing operations for fiscal 2015. Adjusted earnings per share are projected to increase between 32% and 35% versus fiscal 2014 to $2.25 – $2.30, including the impact of the 53rd week. The lower end of our guidance increased from the $2.22 previously communicated in September.
  • In the second quarter, the Company took receipt of approximately 8.6 million shares of its common stock as the first installment of the previously announced $500 million accelerated share repurchase program. In early December, after the quarter ended, the Company took receipt of an additional approximately 1.3 million shares to complete the program.
  • The Board of Directors declared a regular dividend of $0.55 per share to be paid in the third quarter.

* See the ‘Adjustments to Earnings Per Share’ section below for more details

“Our brands performed well during the second quarter,” said Interim CEO Gene Lee.  “We have been working diligently to execute our strategy, including getting back to basics while delivering the best possible guest experience.  It is starting to show in both improved revenue and profitability.  While it’s still early, we believe our renewed focus on operating fundamentals, coupled with our more streamlined support structure, will help us continue to grow and capture market share.”

Adjustments to Earnings Per Share

  • Diluted net earnings per share from continuing operations for the second quarter were adversely affected by approximately $0.52 ($0.33 non-cash). This includes approximately:
      • 16 cents for restaurant-related asset impairments and lease buy-outs;
      • 16 cents from severance and other costs associated with the support expense reduction efforts announced during the quarter including the closing of its aviation department;
      • 8 cents due to legal, financial advisory and other costs related to the strategic review and associated actions in the proxy contest;
      • 7 cents for the impairment and related tax effects of the lobster aquaculture investment; and
      • 5 cents for debt breakage costs.
  • Excluding adjustments, earnings per diluted share from continuing operations on an adjusted basis were $0.28.

Fiscal 2015 Second Quarter Operating Summary and U.S. Same-Restaurant Sales (SRS) Results

Total
SRS

Total Sales
Millions

Total Sales
Growth

Olive Garden

0.5%

$882

1.4%

LongHorn Steakhouse

2.6%

$346

8.0%

Specialty Restaurant Group

3.2%

$329

13.0%

Operating profit and profit as a percentage of sales, adjusted for restaurant-related impairments, increased at LongHorn and the Specialty Restaurant Group. Both measures declined at Olive Garden primarily due to dairy inflation.

U.S. same-restaurant sales for the fiscal months of September, October and November as follows:

Olive Garden

September

October

November1

Same-Restaurant Sales

0.6%

0.2%

0.7%

Same-Restaurant Traffic

-4.2%

1.3%

-0.2%

Pricing

1.6%

2.0%

2.1%

Menu-mix

3.2%

-3.0%

-1.2%

LongHorn Steakhouse

September

October

November1

Same-Restaurant Sales

3.2%

3.5%

0.8%

Same-Restaurant Traffic

-0.5%

-1.0%

-2.1%

Pricing

2.2%

2.0%

2.1%

Menu-mix

1.5%

2.5%

0.8%

 

1

November same-restaurant sales negatively impacted by Halloween shift from Thursday last year to Friday this year by -0.8% at Olive Garden and -0.7% at LongHorn.

Fiscal 2015 Annual Financial Outlook
The Company announced that its current projection is for adjusted diluted net earnings per share from continuing operations for fiscal year 2015 to be between $2.25-$2.30, an increase of between 32% and 35% compared to fiscal year 2014.  This reflects the expectation that the Company’s combined U.S. same-restaurant sales growth this fiscal year will be 1% to 2% and the impact of a 53rd operating week in the fiscal year.  The current earnings expectations for the year also reflect anticipated support cost savings of $10 million from the support cost reductions announced in the second quarter offset by cost pressures related to beef and dairy.

Fiscal 2015 Continuing Operations Diluted EPS

Q1

Q2

Annual

Projected*

Diluted Net EPS from Continuing Operations

($0.14)

($0.24)

$1.30 -$1.35

Shared Support Costs Related to Red Lobster

0.02

0.00

0.02

Other Strategic Action Plan Costs

0.03

0.08

0.11

Debt Breakage Costs

0.37

0.05

0.42

Asset Impairments and Other Costs

0.04

0.39

0.43

Adjusted Diluted Net EPS from Continuing Operations

$0.32

$0.28

$2.25 – $2.30

Adjusted EPS Growth vs Fiscal 2014

($0.04)

$0.16

$0.54 – $0.59

*Reflects the additional operating week vs. fiscal 2014

Dividend Declared
Darden’s Board of Directors declared a regular quarterly cash dividend of $0.55 per share on the Company’s outstanding common stock.  The dividend is payable on February 2, 2015 to shareholders of record at the close of business on January 9, 2015.

 

Fiscal 2015 Second Quarter Reported to Adjusted Earnings Reconciliation

2014

2015

% Change

Diluted Net EPS from Continuing Operations

$0.05

($0.24)

NA

Shared Support Costs Related to Red Lobster

0.04

0.00

Other Strategic Action Plan Costs

0.03

0.08

Debt Breakage Costs

0.00

0.05

Asset Impairments and Other Costs

0.00

0.39

Adjusted Diluted Net EPS from Continuing Operations

$0.12

$0.28

133%

 

DARDEN RESTAURANTS, INC.

NUMBER OF COMPANY-OWNED RESTAURANTS

11/23/14

11/24/13

838

Olive Garden USA

828

6

Olive Garden Canada

6

844

Total Olive Garden

834

472

LongHorn Steakhouse

445

55

The Capital Grille

52

36

Bahama Breeze

36

42

Seasons 52

35

15

Eddie V’s

13

56

Yard House

48

0

Other

4

1,520

Darden Continuing
Operations

1,467

 

DARDEN RESTAURANTS, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(In millions, except per share data)

(Unaudited)

Three Months Ended

Six Months Ended

11/23/2014

11/24/2013

11/23/2014

11/24/2013

Sales

$

1,559.0

$

1,485.6

$

3,154.8

$

3,017.0

Costs and expenses:

Cost of sales:

Food and beverage

485.5

447.0

987.5

901.1

Restaurant labor

506.8

491.6

1,015.1

983.0

Restaurant expenses

277.4

261.9

549.7

524.5

Total cost of sales (1)

$

1,269.7

$

1,200.5

$

2,552.3

$

2,408.6

Selling, general and administrative

190.4

174.7

350.4

340.1

Depreciation and amortization

80.1

75.5

158.8

149.7

Interest, net

33.7

32.9

145.0

65.7

Asset impairment, net

39.7

0.2

46.6

1.2

Total costs and expenses

$

1,613.6

$

1,483.8

$

3,253.1

$

2,965.3

(Loss) earnings before income taxes

(54.6)

1.8

(98.3)

51.7

Income tax (benefit) expense

(23.8)

(4.2)

(48.2)

3.4

(Loss) earnings from continuing operations

$

(30.8)

$

6.0

$

(50.1)

$

48.3

(Loss) earnings from discontinued operations, net of tax (benefit)
expense of $(1.5), $2.5, $319.3 and $13.2, respectively

(2.0)

13.8

520.5

41.7

Net (loss) earnings

$

(32.8)

$

19.8

$

470.4

$

90.0

Basic net earnings per share:

(Loss) earnings from continuing operations

$

(0.24)

$

0.05

$

(0.39)

$

0.37

(Loss) earnings from discontinued operations

(0.02)

0.10

4.01

0.32

Net (loss) earnings

$

(0.26)

$

0.15

$

3.62

$

0.69

Diluted net earnings per share:

(Loss) earnings from continuing operations

$

(0.24)

$

0.05

$

(0.39)

$

0.36

(Loss) earnings from discontinued operations

(0.02)

0.10

4.01

0.32

Net (loss) earnings

$

(0.26)

$

0.15

$

3.62

$

0.68

Average number of common shares outstanding:

Basic

127.7

130.6

130.0

130.4

Diluted

127.7

132.8

130.0

132.7

(1) Excludes restaurant depreciation and amortization as follows:

$

73.4

$

70.1

$

146.0

$

139.0

 

DARDEN RESTAURANTS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions)

11/23/2014

5/25/2014

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

157.5

$

98.3

Receivables, net

66.7

83.8

Inventories

193.5

196.8

Prepaid income taxes

9.2

10.9

Prepaid expenses and other current assets

74.9

72.3

Deferred income taxes

172.7

124.0

Assets held for sale

44.9

1,390.3

Total current assets

$

719.4

$

1,976.4

Land, buildings and equipment, net

3,338.3

3,381.0

Goodwill

872.5

872.5

Trademarks

574.6

574.6

Other assets

283.1

296.2

Total assets

$

5,787.9

$

7,100.7

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

201.8

$

233.1

Short-term debt

20.0

207.6

Accrued payroll

104.6

125.7

Accrued income taxes

135.4

Other accrued taxes

66.0

64.5

Unearned revenues

265.7

299.7

Current portion of long-term debt

15.0

15.0

Other current liabilities

497.5

457.4

Liabilities associated with assets held for sale

215.5

Total current liabilities

$

1,306.0

$

1,618.5

Long-term debt, less current portion

1,468.4

2,481.4

Deferred income taxes

279.8

286.1

Deferred rent

218.8

206.2

Obligations under capital leases, net of current installments

50.8

52.0

Other liabilities

358.6

299.6

Total liabilities

$

3,682.4

$

4,943.8

Stockholders’ equity:

Common stock and surplus

$

1,200.7

$

1,302.2

Retained earnings

997.3

995.8

Treasury stock

(7.8)

(7.8)

Accumulated other comprehensive income (loss)

(79.8)

(128.1)

Unearned compensation

(4.9)

(5.2)

Total stockholders’ equity

$

2,105.5

$

2,156.9

Total liabilities and stockholders’ equity

$

5,787.9

$

7,100.7

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