Darden FY 4Q17 Earnings Call Notes

Gene Lee – Chief Executive Officer

Simplification has helped improve execution

“Don’t underestimate how simplifying our business has helped us improve execution. When we look at both Olive Garden and LongHorn where they were three years ago operationally to where we are today, these businesses are much simpler on a trajectory to continue to get even more simple. And we believe that’s the key to our guest count growth is better execution through simplicity.”

There’s still pockets of strength and pockets of weakness

“I would say a couple of comments on the industry. I still say there is pockets that there’s some real strength, there is some pockets where there is some weakness. We’re still seeing an upscale where we used in. You’re seeing real weakness in New York City, which has had a little bit of impact on capital growth. But overall, I haven’t seen a whole lot of change in the competitive landscape. The consumer in our view is not as reactionary to short term incentives, they come in and eat. They’re looking for everyday value, and that’s something that we continue to promote.”

Continues to be labor inflation

“Labor, we continue to see some pretty good inflationary pressure. We’re thrilled that we’re able to think or actually improve our retention rates right now; our team members are staying with us; they’re engaged, but there is some inflation; there’s 3% to 4% wage inflation in our labor number, right now; we’re able to offset some of that with productivity enhancements. But labor continues to be something that we’re focused on.”

The only way Amazon is in our world is through prime delivery

“And lastly, the question on Amazon, the only way Amazon’s in our world right now is through Amazon Prime delivery; we have a test going with them; we’ll continue to partner with them and see if we can make that work; we constantly sit around here thinking about how does Amazon have an impact on our business. Our research tells us that guests still want to come to restaurants. Believe it or not, millennials still want to come to restaurants. I know you all don’t think millennials go to casual dining restaurants, but 30% of all of our guests are millennials versus the 24% — they’re 24% of the population, so we over index. ”

Rick Cardenas

Strategy is to grow price below inflation and take share

“One of the things is we are going to be pricing below our inflationary impacts. And so we’re doing this for the long run. As Gene mentioned, we’re going to leverage Darden’s advantages, leverage Darden’s scale the price below, inflation in our competition to grow market share overtime”

Darden FY 3Q17 Earnings Call Notes

Gene Lee – President and CEO

Unit economics of a new acquisition

“Next, the restaurant level economics are very attractive. Cheddar’s has average restaurant volumes of 4.4 million, average restaurant guest counts of approximately 6,300 guests per week and an average check of approximately $13.50, all of which helps provide a strong return on investment and with only 165 restaurants today, the significant runway for growth.”

Darden platform should give a boost

“And so, having Cheddar’s being able to plug into the resources that — and capabilities that we’ve developed with data and insights should be a big advantage for them. It’s going to take us some time to be able to get them into our systems, but that we think about the Darden platform and plugging brands into it, we think that gives — that enables these brands to have a significant advantage in the marketplace.”\

Consumer pretty steady

“I would say if you look at our industry benchmarks, for the first couple weeks of March, the delay in the tax refunds was an impact in February and we’ve seen a few, a little bit better trends in the beginning of March. We’re also in March dealing with a much later Easter this year than we had last year. So just a lot of noise.

When I think about the consumer, I think the consumer has been pretty steady. We know the consumer is looking for everyday value. The consumer is not reacting to promotional value constructs, the way they did a few years ago and I think that when you give the consumer what it is that they want, they’re visiting restaurants.”

Keys to successful acquisition

“We think we give them a great scale advantage. We think the data and insights work that we’re doing, we think we help them with their strategic planning and we’ve got an umbrella that enables them to have unique operating cultures inside the brands and yet have these industry-leading retention numbers.

And so as long as we’re organized appropriately and we stay decentralized and have great presidents run their businesses, managing the portfolio is really just a management challenge and we got to keep the center small and so that we don’t burden the brands but we help the brands compete more effectively in the marketplace and I believe every one of our brands goes to market today with a significant advantage.”

Harder and harder to find locations to open olive garden

“the opportunity to open Olive Garden is not as plentiful as the opportunity to open Cheddar’s and we’ve got — we’re not fully penetrated with Olive Garden, but we’re getting closer and closer and it’s getting harder and harder to find locations where it would be — we could get that return because of cannibalization and other factors.”

Rick Cardenas


“Restaurant labor was favorable, driven by lower manager incentive pay, given last year’s strong performance in the third quarter. This was partially offset by continued hourly wage rate inflation pressure. Restaurant expenses were unfavorable due to higher than anticipated utilities inflation, particularly natural gas, increased preopening related to more second ever openings this year than last, increased credit card fees and Worker’s Compensation and public liability claims.”

Do see some commodities inflation

“Hey John, it’s Rick. Yes, we did say commodities are expected to be up, buy up ever so slightly in the fourth quarter. Eventually this is going to turn. So, we’re not going to talk about ’18 yet, but we do see commodities slight inflation this quarter and what we talk about in our presentation, we’re about 80% covered. So, we’re, pretty covered for the rest of the year and including 80% in beef. So, we feel pretty good about where our numbers for the rest of this year and we’ll talk about ’18 in ’18.”

Darden (DRI) Fiscal 2017 Q1 Earnings Call

Darden (DRI) CEO Gene Lee said there are too many restaurants and he’s hoping a few may shut down to draw some capacity out of the system

“I’m hoping that more inventory will come out of the system.  We’ve seen some big announcements of closures lately, and I also think that if you drive down the road you’re starting to see more restaurants closed. You also see more restaurants opened, but we could use some inventory to come out. That would be helpful.”

Doesn’t foresee the restaurant industry outlook improving substantially from these levels

“I would say that as we think about the industry, we prepare our plans, and we assume the industry is going to stay where the industry is going to stay.  We’re not assuming the industry is going to get a whole lot better.”


SK Additions:

Restaurants have to invest in experience

“I think the consumer environment, it continues to be difficult. I think there’s a lot of choices the consumer has with their discretionary income. And I think restaurants are competing against a lot of those other choices, not just restaurants. I think restaurants today have to stay — they have to stay relevant, and they need to continue to invest in the experience.”

Maybe some inflation in the second half of our year

“We still expect commodities to inflate in the back half of the year, more towards the fourth quarter. But we do expect commodities to be flat to low single digits unfavorable for the year. And, as I said, this quarter we had 150 basis points of commodity deflation. So, you would see that we’d have some inflation in the back half of the year. What does that mean to pricing? We still believe that we have the pricing strategy that’s correct for us. Overall inflation for us, when you include labor and other things, is still going to be 1.5% to 2%”

3% wage growth as market continues to tighten

“I think that your 3% assumption for wage rate in the back half of the year is probably the right assumption. The market continues to tighten.”

Average check is higher online

“Let me deal with the first one and hopefully I’ll remember the second one. We believe that it’s important to move as many people as we possibly can over to online ordering. We’ve talked about the importance of that because the average check is much higher when someone orders online and we can prompt them through that order.”

Don’t believe people aren’t eating out because groceries are cheaper

“I just have a hard time, when you think about our brands, that, where they’re experiential, that people are trading out and staying home because they can get their groceries a little bit cheaper. I’m just having a hard time with that.”

I’m not sure it’s really so promotional out there

“People say it’s promotional. I’m not so sure that the consumer believes it’s promotional because they’re still paying 2.5% more.

Darden 4Q16 Earnings Call Notes

Gene Lee

Outperformed peers

“Thank you, Kevin, and good morning everyone. Thanks for joining us. We had a strong quarter with each of our brands, significantly outperforming the industry benchmarks as we continue to focus on improving our execution. Same-restaurant sales grew 2.6% with positive same-restaurant sales in each of our brands. It was a volatile quarter as a result of multiple holiday and calendar shifts, including Easter, Memorial Day and spring break vacations, which we believe negatively impacted comps across the industry.”

The labor market is tight

“I’ll close by saying, and maybe preempt some other questions on labor, is that labor market is tight and it continues to be tight in specific markets, which is driving a little bit more inflation. But as I’ve said many times on this call, I prefer to operate in an environment where labor is tight. I think that will lead to demand into the future.”

Wage inflation is 2.5%-3.5%

“We’re seeing 2.5% to 3.5% wage inflation depending on where we are, in which brand and which part of the country. We’ve not seen a major tick-up in any of our turnover. Actually, our turnover remained strong. We believe in our employment proposition.”

Guests continue to gravitate towards value

“I think the way I would talk about consumer behavior is that guest continues to look for value, and affordability is only one component of that value but it’s not really enough to drive sustainable traffic growth. ”

I think we’re executing better

“I think there’s a few. First, I want to start with, I think we are executing better and I know sometimes we want to look for some other things but I want to pivot back to I think Dave George and Danielle Kirgan, the team at Olive Garden have just done a great job improving the day to day executions.”

Investing in guest experience is yielding pricing power

“There is a lot of talk about how promotional the environment is right now, but the facts are the industry still charging the guest 2 plus percent more than they did last year for the experience, and we believe that 2017 with what we know right now is the year to invest, continue to invest back into the guest experience to continue to grow market share. ”

I don’t want to comment on June

“I really don’t want to comment on June. You guys have access to different benchmarks. At this point I want to talk about fourth quarter and fiscal 2016 and we’re not going to talk about what’s happening in the industry in June.”

To GO is a trend that could benefit the whole industry

“I do think there’s an opportunity for everybody in the industry to capture this. Where we believe that Olive Garden is better situated is the kind of food that we serve. And so, if you are Bar & Grill, it’s not like you can put 20 hamburgers in a container and send the rolls home and have them put everything together and still have a quality product, but we can send at home pans of lasagne, pans of chicken parmesan. I think the style of food that we serve really lends itself to this trend that’s taking place. And so I think at Olive Garden we are better situated.”

Darden (DRI) CEO Gene Lee Interview

Darden (DRI) CEO Gene Lee on trying to change culture

“There’s nothing like changing your whole board to have a mandate for change within an organization.  Culturally as an operator, culture is hard to change.  When our entire board was turned over, everyone within the organization was now willing to accept change and trying to figure out how we regain the momentum.”


Source: https://www.youtube.com/watch?v=oxeSCgi-g1A&index=99&list=PLwJK8JzK8C_fr-qVhEg7dt14JNOwxFe3L

Milliken Institute: May 2, 2016

Darden FY 2Q16 Earnings Call Notes


Gene Lee

The consumer has remained consistent despite what we’ve seen in industry data

” I would say that the consumer has been consistent quarter-to-quarter in our observations it is still buying a little less on daily using the whole menu. They are buying appetizers, they are buying deserts, they are buying high value items we are seeing a lot of migration into the 9.99 Cucina Mia in Olive Garden. But an interesting dynamic with that is that over 50% of people that buy that item will add on to it and turn it into a 12.99 entre by adding some protein. So we have seen consistency, obviously I am aware of the slight turndown in the NAP track numbers in Black Box, I really don’t have an idea of what caused that. But I would say that it deals from our standpoint it feels pretty good out there right now. And I like the environment we are operating in and I think the consumer is going to value but value today isn’t all about price. We are seeing consumers do some things in LongHorn where we have got actually we have increased the size of our filet we have got a 10 ounce filet on the menu that’s doing really-really well. And the — because the consumer is rewarding high quality execution and so we will continue to monitor, but right now I am pleased with how the consumer is behaving in our restaurants.’

Migrating dollars from television to digital but television is still very very effective

“we are migrating dollars from traditional television media into digital and we have continued to find that to be affective. But we are also continuing to find the television advertising is affective…we found out at the television is still of a very-very effective medium to drive traffic. And lastly on digital, digital is very effective so we can get very targeted and we can measure that.”

If you create a compelling atmosphere, value is defined by more than just price

“I want to come back to what I think is really important in our business which is execution at the restaurant level and if we create an environment where our executing our food, we’ve got great service and atmospheres a compelling, overall value will be defined by much more than price and we talk a lot about that organization.”

Guest satisfaction scores are really high with in restaurant tablets

” This has been incredibly positive for our guests. Guest satisfaction scores are really high with people who use the tablet. The other thing and you mentioned it that’s been very positive is the fact that the e-mail club sign-offs, we are getting 80% of the guests that interact with the device are signing up for the e-club and over half of those are new sign ups.”

Competitors are getting more aggressive, but we’re focused on value generally

“what I’m seeing or what we’re seeing is that yes our competitor set is getting a little more competitive and going back to some of the tactics that were used three or four years ago with bundles, and we know what we’re monitoring it, we’re watching closely what others are doing obviously is they’re watching what we’re doing. But we’re focused on value, just not price.”

Beef prices are coming down

“here is what I think about where we are in the beef market, beef has — the animal itself has been declining in price, middle meats continue to be strong, we haven’t seen that much decline in the overall cost of the middle meat which you strips and aligns the short lines and such. We have seen some weakness in ground beef which is really good for the hamburger players. We do expect there to be some tailwinds, we do expect to be able purchase beef in a deflationary environment for the next couple of years, as the herds continue to build and the cycle starts to change. I don’t believe that beef is going back to levels that it was at 10 or 15 years, I do believe it’s coming down year-over-year. But beef is still going to be a very expensive commodity, in comparison to the other options”

Darden FY 1Q16 Earnings Call Notes

80% of guests are interacting with tablets at tables

“We also continued the roll out of our table-top tablets. The tablets are now on more than half of our restaurants, with 80% of the tables choosing to interact with the devices in those restaurants. We continue to see the same benefits, as we saw during the tests, higher add-on sales, faster dining times, and overall higher guest satisfaction scores. We are pleased with the progress of the rollout, and we expect to complete it by the end of the second quarter.”

Intend to separate 488 properties through sale lease back

“We now intend to separate 488 restaurant real estate properties through the sale leaseback of 64 restaurant properties, and a REIT spend that will include 424 restaurant properties to create an independent company called Four Corners Property Trust, which was discussed in its Form 10 filing last month.”

Beef prices should be much better in 2017

“On beef, as I have said in the past, beef year-over-year comparisons have a lot to do with when you contracted last year. We believe that we are going to start to have some positive advantages in LongHorn, as the beef market starts to weak, and especially, we expect to see some significant improvement in the back half of the year. But as we move into 2017, we think that the beef market is going to be a much better market for us.”

Comps get a little more difficult, but still easy

“although the comparisons are a little bit more difficult — they are a little bit more difficult on the sales side. We still had some weak guest counts in the back half of last year. So I think that we will continue to outperform the industry, as we move forward.”

Wage pressure is a problem

“Wage pressure continues to be a problem. We will continue to monitor it, as we monitor the different states and the different cities and what they are doing with minimum wage. The job market is improving. We are seeing in certain markets today, becoming a little bit more difficult to hire help. So that will eventually put some pressure on our average wage. But right now, I believe that we are managing this very-very effectively.”

Darden Restaurants FY 4Q15 Earnings Call Notes

Focus on service, simplification, menu evolution

“Our Olive Garden strategy has been to focus on our core guests and the frequency of their visits by concentrating on the following areas: First, ongoing service and culinary simplifications that allow our restaurant teams to deliver great food and service. Second, continued menu evolution that focuses on our core brand equities; the improving appeal of Cucina Mia provides a great everyday value option for our guests, thereby allowing us to be more balanced with our promotional offerings.”

Separating a portion of our real estate

“let’s spend a few minutes discussing the real estate announcement we made this morning. The Board and I are excited about our announcement to separate a significant portion of our real estate and create a separate real estate business, which can grow in its own right. This decision was the result of a comprehensive analysis that we performed along with the support of our advisors. The plan is intended to optimize the value of our real estate by separating approximately 500 of our real estate properties utilizing three different steps”

Retiring $1B in debt

“after receipt of the proceeds, we intend to retire $1 billion of debt. This debt retirement will be sourced by the sale leaseback proceeds, a REIT distribution back to Darden at the separation funded by debt raised at the REIT, and cash on our balance sheet.”

Darden has a lot more concepts besides just Olive Garden

“The four segments are Olive Garden, LongHorn, Fine Dining, which includes The Capital Grille and Eddie V’s, and our other businesses which includes Yard House, Season 52, Bahama Breeze, Consumer Packaged Goods, and franchise revenues”

Normalized inflation environment

“We anticipate fiscal 2016 to be a more normalized inflation environment, resulting in overall inflation of 1.5% to 2%, with commodity inflation of 0.50% to 1%, and we expect the price at the low end of the overall inflation range.”

New CEO this year

“I want to share a couple of final thoughts. Fiscal 2015 was a year of meaningful transition at Darden with the election of a new Board of Directors, as well as my appointment to CEO.’

Flat traffic beats the market by a point to point and a half next year?

“right now we’re expecting traffic to be flattish for next year, which we think is going to end up beating the market by a point to point and a half. I’ve always said that the first barrier for us was to breakthrough and for Olive Garden to start to beat the market.”

Remodels doing 7 points better than the rest of the system

“we got a lot going on with remodels. I’ll start off by saying the initial 13 that we did which were pretty extensive remodels are trending in the mid-seven range above the system average. So in a six-way analysis they are performing, it’s a little over 7% in same-restaurant sales growth above the system”

We’ve significantly outperformed Knapp Track over the last 16 weeks

“We had one week in there, which was Easter week, the prior year that was for some reason we had a really bad week. That may have had more to do with promotional way to some other timing, but over the last 15, start of 16 weeks Olive Garden has significantly outperformed Knapp-Track. So I am pleased, I am not caught up any sequential trends where we continue to move our marketing spend to try to understand what’s working and what’s not. And when you make some commitments, sometimes it takes three to four weeks to adjust after you try something that might not be working as well as you like.”

Wage inflation may be in the high end of the 2-3% range

“we put that in the all others, in that 2% to 3%. I would say the wage rate is probably in the upper-half of that range, but there’s many other items that when you look at our P&L that would be bringing that overall inflation rate to the middle of that range at this point.”

Cutting costs by cleaning carpets less frequently

“I think our operating teams are doing a great job of going in and saying, for example, how many times do we really need to clean the carpets in a restaurant? There is a protocol, that you clean carpets once a month. If you do it more than that you end up actually destroying the carpet, and see really not a whole lot of benefit there. So we found a lot of restaurants that were cleaning carpets twice-a-month. So we’ve been able to find — that’s just one example of the costs the operating teams have been able to find over time.’

Consumers aren’t as deal driven as they have been

“I think we’re getting a little bit of help from the consumer. I do think the consumer is looking for less discounting activity today than they were a year ago, or two years ago. We’ve had a lot of discussion around the gas, what we call the gas dividend that’s going back to the consumer. I think there’s a lot of expectation that that was going to stimulate traffic. What I’ve been saying is, we haven’t seen it stimulate traffic, but we have seen it change the consumer behavior once they’re in our building, and they’re not seeking the deals the way they were years ago.”

People are picking up more add ons

“We’re seeing some more –- the consumers buy more add-ons. They’re buying wine, dessert, apps. So I think that that is the environment, is helping us somewhat move away from these constructs, and we’re just not finding them to be as successful as they once were, so we’re able to do that.”

It’s boosting our margins

“From a margin perspective, I would say that we’re picking up at probably well over a 100 basis point from reducing this heavy discount mentality or strategy, and you see that in every line in the P&L. So you have less discounts, the food cost improves, your labor cost improves.”

Darden FY 3Q15 Earnings Call Notes


“Before we begin, let me say I’m thrilled to have been chosen by the board to be the next CEO of Darden. The board and I’ve established a terrific relationship, and I’m excited to continue to work with them and the talented team members throughout this great company.”

Getting back to basics

“we’re focused on culinary innovation and execution inside each of our brands, delivering attentive service to each and every one of our guests, and creating an engaging atmosphere inside our restaurants.”

Food costs higher than last year, but moderated from 2Q

“Food and beverage costs as a percentage of sales this quarter were higher than last year, driven by continued elevated beef inflation. Dairy costs are also higher on a year-over-year basis, but have moderated significantly from the second quarter. The impact of this inflation was partially offset by improvements in food waste.”

Labor costs were down

“Restaurant labor costs were approximately 50 basis points lower than last year, as a percentage of sales, due to sales leverage and improved hourly labor productivity at Olive Garden, that more than offset wage rate and benefit cost inflation.”

Restaurants and real estate

“Right now, our strategic focus is on two fronts. It’s running our restaurants better, and second, it’s the real estate.

As I said last quarter, everything is still on the table. We will come back and analyze other strategic alternatives that are available to us but right now, we’re focused on those two initiatives”

Revisiting the real estate possibilities

“I’ll take the real estate question and Brad’s looking up the answer for the marketing spend. What’s different is that we’re just taking a fresh look at this and a comprehensive look with a new set of advisors and looking at the marketplace and seeing what’s available to us. We’re encouraged at this point in time. We’re moving away – or moving towards more of a asset-light approach to the business, if it makes financial sense; and I think that’s how we’re thinking about it, and it’s what’s a little different. These cap rates that we’re getting for our properties today are below or better than what we thought we would get when we originally did analysis of this 12 months to 18 months ago. And so, we’re just taking a fresh look at what the possibilities are.”

We’ve got to improve traffic but not at all costs

“But back to your question, we know we’ve got to change the momentum in guest traffic as we move forward, but we’re not going to do it at all costs. We have a wonderful P&L at Olive Garden, a wonderful business model and we need to keep it more in balance. ”

Customers getting a little bit less price sensitive

“And the one thing that we’re seeing from the consumer today is we are seeing the consumer’s willingness to buy less on deal and actually for the first time in a very long time, we’re seeing alcoholic beverage sales growth, we are seeing add-on sales growth, we are seeing more dessert sales. All these dynamics are coming together at once, and is really helping the Olive Garden business model.”

A capital light strategy

” We want to keep the capital structure in balance and over time, that should lift shareholder value. We see this as a bigger than just a treasury function. We see this is really moving to a more asset-light approach and setting up our capital structure in a way that we can get the greatest return for our shareholder. One thing that I want to keep coming back to is that these properties we’re selling, we’re selling them at market rents with strong lease terms for OpCo, so we think this is – again, we’re using this just to inform us on a broader real estate strategy.”

Healthier consumer

“the point I was trying to make is that we are seeing a little bit healthier of a consumer. We’re not seeing a direct impact on traffic, as you think back to discretionary income increasing, but we are seeing for the first time through Crest Data, through our own data, the guest is buying less on deal, and that’s allowing us to grow our check average, and improve our overall profitability. We’ve been in this space for a long time. We’ve been trying to create value through deals for consumers to entice them to come see us and dine with us.”

Darden FY 1Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“From a same-restaurant sales prospective, this was a difficult quarter for the restaurant industry generally, in casual dining in particular, and obviously, was a difficult quarter for us. This summer’s sharp spike down in comparable sales within casual dining follows, I think we all know, were some pronounced spikes up and down this past winter and spring.”

“Darden’s total sales from continuing operations increased 6.1% to $2.16 billion. On a blended same-restaurant sales basis, the results for Red Lobster, Olive Garden and LongHorn Steakhouse declined 3.3%”

“Food inflation in the first quarter was approximately 2%, with beef and chicken inflation in the mid-single-digit range and dairy inflation in the low double-digit range. Seafood inflation was nominal, but we now expect double-digit inflation in the second, third and fourth quarters primarily related to the shrimp production [ph] issues in Asia”

“When you change every point of sale or POS terminal inside a restaurant, there is a distraction to every single employee. And until they become unconsciously confident with that, your service standards will drop a little bit.”

“We have to address affordability. We also have to address the need of the consumer who can afford to spend more. And we need to make sure that we continue to improve that part of what we deliver to each and every guest.”

” if you look back to the beginning of this calendar year, we’ve seen some pretty — more pronounced volatility than we’ve been seeing before. So some pretty big downward spikes, February comes to mind, followed by some reasonably big up spikes and then we saw the down spike this summer. ”

“from a industry perspective, this first quarter was really an outlier in terms of the spike down. And so we do hope and expect that that’s the case, and that we would see it, as I think Brad said, bounce back from — it looks a little bit more flat for the balance of the year. ”