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.”