Darden Restaurants, Inc. (DRI)

DRI 
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Industry: Consumer Services
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Darden Restaurants (DRI)

Q2 2011 Earnings Call

December 21, 2010 8:30 a.m. ET

Executives

Matthew Stroud - VP, IR

Clarence Otis - Chairman and Chief Executive Officer

Drew Madsen - President and Chief Operating Officer

Brad Richmond - Chief Financial Officer

Gene Lee - President, Darden’s Specialty Restaurants

Analysts

David Palmer - UBS

David Tarantino - Robert W. Baird

Steve West - Stifel Nicolaus

Jeff Omohundro - Wells Fargo

Mitch Speiser - Buckingham Research

Andrew Barish - Jefferies

Matt DiFrisco - Oppenheimer

Joe Buckley - Bank of America

Jeffrey Bernstein - Barclays Capital

Brad Ludington - KeyBank

Alvin Conception - Citi

John Glass - Morgan Stanley

John Ivankoe - JP Morgan

Jason West - Deutsche Bank

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the second quarter earnings release conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call please press star then 0.

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Matthew Stroud. Please go ahead.

Matthew Stroud

Thank you Greg. Good morning. With me today are Clarence Otis, Darden’s Chairman and CEO, Drew Madsen, Darden’s President and COO, Brad Richmond, Darden’s CFO and Gene Lee, President of Darden’s Specialty Restaurant Group.

We welcome those of you joining us by telephone or the Internet During the course of this conference call Darden Restaurants’ officers and employees may make forward-looking statements concerning the company's expectations, goals or objectives. Forward-looking statements are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any forward-looking statements speak only as of the date on which such statements are made and we undertake no obligation to update such statements to reflect events or circumstances arising after such date. We wish to caution investors not to place undue reliance on any such forward-looking statements. By their nature forward-looking statements involve risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. The most significant of these uncertainties are described in Darden's Form 10-K, Form 10-Q and Form 8-K reports including all amendments to those reports.

These risks and uncertainties include food safety and food-borne illness concerns, litigation, unfavorable publicity, federal, state and local regulation of our business including healthcare reform, labor insurance costs, technology failures, health concerns including virus outbreaks, the intensely competitive nature of the restaurant industry, factors impacting our ability to drive sales growth, the impact of the indebtedness we incurred in the RARE acquisition, our plans to expand our newer brands like Bahama Breeze and Seasons 52, a lack of suitable new restaurant locations, higher than anticipated cost to open, close, or remodel restaurants, increased advertising and marketing costs, a failure to develop and recruit effective leaders, the price and availability of key food products and utilities, shortages or interruptions in the delivery of food or other products, volatility in the market value of derivatives, general macroeconomic factors including unemployment and interest rate, severe weather conditions, disruptions in the financial markets, a possible impairment in the carrying value of our goodwill or other intangible assets, a failure of our internal controls over financial reporting and other factors and uncertainties discussed from time to time in reports filed by Darden with the Securities and Exchange Commission.

A copy of our press release announcing our earnings, the Form 8-K used to furnish the release to the Securities and Exchange Commission and any other financial and statistical information about the period covered in the conference call including any information required by Regulation G is available under the heading Investor Relations on our Web site at darden.com. By way of information we will hold an analyst and institutional investor meeting in Orlando on January 31st through February 1st 2011. This event will also be Web cast for those unable to attend.

And we plan to release fiscal 2011 third quarter earnings and same-restaurant sales for fiscal December 2010, January and February 2011 on Thursday, March 24, 2011 after the market close. We released second quarter earnings yesterday afternoon. These results were available on PR Newswire and other wire services. We recognize that most of you have reviewed our second quarter results so we won't go through them in detail once again in an effort to provide more time for your questions. Rather, Clarence will offer a brief overview, Brad will provide some additional line item detail about the financial results for the quarter, Drew will review the second quarter operating performance of our larger brands followed by Clarence, who will have some closing remarks. After that, Clarence, Drew, Brad and Gene will then respond to your questions. Clarence.

Clarence Otis

Thank you Matthew. As many of you know, after what has been an extended period of same restaurant sales declines this is the second consecutive quarter of same restaurant sales growth here at Darden. And as the economy recovers even at a pace that is much slower than any of us would like, we’re increasingly confident we can sustain same restaurant sales growth going forward.

So we think this is a good time to reiterate how we view success for our business in an environment that supports growth. And quite frankly, we feel good being able to talk about that after what has occurred over the last couple of years. Our long-term target for same restaurant sales growth is 2-4% and that has been the target for some time now. It’s a level, which when combined with the 4-5% new unit growth our brands will generate collectively, enables us to do two very important things - one, grow market share in full service dining and two, grow diluted earnings per share 10% to 15%, which is our long-term target range.

The other important variable in all of this of course is costs, especially labor and food costs. And we’re confident that with the level and composition of top line growth I just described we can deliver 10-15% earnings growth even as we see volatility in one cost category or another. And the reasons for our confidence are our very robust support platform and we think just as important, our track record of success in working on a consistent basis across the company to make that platform more and more efficient and more and more effective.

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