Darden Restaurants, Inc. (DRI)

DRI 
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Industry: Consumer Services
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Darden Restaurants (DRI)

Q4 2011 Earnings Call

July 01, 2011 8:30 am ET

Executives

C. Richmond - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Clarence Otis - Executive Chairman, Chief Executive Officer and Chairman of Executive Committee

Matthew Stroud -

Andrew Madsen - President, Chief Operating Officer and Director

Eugene Lee - President of Specialty Restaurant Group

Analysts

Bryan Elliott - Raymond James & Associates, Inc.

Brad Ludington - KeyBanc Capital Markets Inc.

Jeffrey Omohundro - Wells Fargo Securities, LLC

John Glass - Morgan Stanley

David Tarantino - Robert W. Baird & Co. Incorporated

Stephen Anderson - Miller Tabak + Co., LLC

Mitchell Speiser - Buckingham Research Group, Inc.

Sara Senatore - Sanford C. Bernstein & Co., Inc.

Jeffrey Bernstein - Barclays Capital

Joseph Buckley - BofA Merrill Lynch

Steve West

Karen Lamark - Federated Investors

Howard Penney - Prudential Equity Group

Bart Glenn - D.A. Davidson & Co.

David Palmer - UBS Investment Bank

Peter Saleh - Telsey Advisory Group

Stefan Karlsson - UBS Investment Bank

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter earnings release conference call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to our host, Mr. Matthew Stroud. Please go ahead.

Matthew Stroud

Thank you, Mary. 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 businesses, including healthcare reform, labor and insurance costs; technology failures; health concerns, including virus outbreaks; the intensity -- 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 costs 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 and other products; volatility in the market value of derivatives; general macroeconomic factors, including unemployment and interest rates; 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 of 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 website at darden.com.

We plan to release fiscal 2012 first quarter earnings and same-restaurant sales for fiscal June, July and August 2011 on Wednesday, September 28, 2011, before the market opens with the conference call shortly thereafter. So we are changing our earnings release process to issue earnings at 7:00 a.m. followed by a call at 8:30 beginning with the first quarter.

We released fourth quarter earnings results yesterday afternoon. These results were available on PR Newswire and other wire services. Now we recognize that most of you reviewed our fourth quarter and fiscal year earnings results, so we won't take the time to go through them all in detail once again in an effort to provide more time for your questions.

However, we will offer a line item summary of the P&L and discuss our financial outlook for fiscal 2012, as well as we'll be discussing our brand-by-brand operating performance summary. Now we expect this call to last approximately one hour, but we're prepared to extend that if necessary.

Brad will now provide additional detail about our financial results for the fourth quarter and our fiscal year. Drew will briefly review our operating performance of our larger brands. Gene will discuss the Specialty Restaurant group. Brad will review our fiscal 2012 outlook, and he will be followed by Clarence, who will have some final remarks, and we'll then respond to your questions. Brad?

C. Richmond

Well, thank you, Matthew, and good morning, everybody. Darden's total sales from continuing operations increased 6.8% in the fourth quarter to $1.99 billion. This strong top line performance compares to an estimated 2.9% total sales growth for the industry as measured by Knapp-Track. So as you can see, we had meaningful market share growth. On a blended same-restaurant sales basis, the results for Olive Garden, Red Lobster and LongHorn Steakhouse were up 2.2% in the fourth quarter. For context, industry same-restaurant sales as measured by Knapp-Track and excluding Darden are estimated to be up 1.9% for the quarter.

Olive Garden fourth quarter U.S. same-restaurant sales were flat at 0.0%. This includes the adverse effect of the timing of last year's price increase, which occurred early March of fiscal 2010 but was not repeated in the fourth quarter of this year. We estimate this adversely affected same-restaurant sales at Olive Garden by approximately 100 basis points in each month of the quarter. Traffic for the quarter improved sequentially from this year's third quarter and was flat to last year.

Red Lobster's fourth quarter U.S. same-restaurant sales increased 3.8% and includes the benefit of the Lent and Easter holiday shift and the shift of Lobsterfest. These shifts positively affected March sales by about 20 basis points and April same-restaurant sales by 280 basis points.

LongHorn Steakhouse fourth quarter U.S. same-restaurant sales increased 6.0%. This includes the impact of the holiday shift of Lent and Easter that positively affected March same-restaurant sales by 80 basis points but adversely affected April same-restaurant sales by 180 basis points. And we also saw continued strong same-restaurant sales gains in our Specialty Restaurant group. We had 5.3% same-restaurant sales growth on a blended basis.

The Capital Grille fourth quarter same-restaurant sales increased 7.9%. Bahama Breeze fourth quarter same-restaurant sales increased 2.0%, and Seasons 52 fourth quarter same-restaurant sales increased 2.2%. Now let me turn to a margin analysis of the fourth quarter.

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