Darden Restaurants Reports Fourth Quarter and Annual Diluted Net Earnings Per Share; Increases Quarterly Dividend by 28 Percent

Darden Restaurants, Inc. (NYSE: DRI) reported sales and diluted net earnings per share for the fourth quarter and fiscal year ended May 30, 2010.  In the fourth quarter, diluted net earnings per share from continuing operations decreased 7% to 81 cents, versus 87 cents in the prior year, which included an additional fiscal week. The additional fiscal week contributed approximately six cents of diluted net earnings per share in the fourth quarter of fiscal 2009.

During the fourth quarter of fiscal 2010, the Company recognized a $12.7 million pre-tax reduction in sales associated with a correction to its third quarter estimate of gift card redemptions.  This non-cash correction reduced diluted net earnings per share from continuing operations by approximately five cents in the fourth quarter.  Excluding the $12.7 million pre-tax charge, diluted net earnings per share from continuing operations were 86 cents.  

Fourth quarter sales from continuing operations were $1.86 billion, compared to $1.98 billion in the prior year, a 5.7% decrease (13 weeks vs. 14 weeks).  The additional fiscal week contributed approximately $124 million of sales in the fourth quarter of fiscal 2009.  On a reported fiscal quarter basis, combined same-restaurant sales for Olive Garden, Red Lobster and LongHorn Steakhouse were down 2.3% this quarter (13 weeks vs. 13 weeks).  On a calendar week comparison, which is consistent with how the Knapp-Track™ benchmark is calculated, Darden’s blended same-restaurant sales for the fourth quarter were down 0.9%.  This compares to an estimated decline of 1.4% for the Knapp-Track™ benchmark of U.S. same-restaurant sales, excluding Darden.  

For the fiscal year, diluted net earnings per share from continuing operations increased 8% to $2.86 from $2.65 in the prior year, which included an additional fiscal week.  The additional fiscal week contributed approximately six cents of diluted net earnings per share in fiscal 2009.

For the full year, fiscal 2010 sales from continuing operations were $7.11 billion, a 1.4% decrease (52 weeks vs. 53 weeks) from the prior year’s $7.22 billion.  On a reported fiscal year basis, combined same-restaurant sales for Olive Garden, Red Lobster and LongHorn Steakhouse were down 2.6% in fiscal 2010 (52 weeks vs. 52 weeks).  On a calendar week comparison, which is consistent with how the Knapp-Track™ benchmark is calculated, Darden’s blended same-restaurant sales for the fiscal year were down 2.4%.  This compares to an estimated decline of 4.9% for the Knapp-Track™ benchmark of U.S. same-restaurant sales, excluding Darden.  

“Our financial performance for the quarter was solid, capping a year of strong earnings growth despite very challenging economic and consumer conditions,” said Clarence Otis, Chairman and Chief Executive Officer of Darden.  “The month-to-month sales volatility we saw in our industry during the quarter is an indication that consumers remain cautious.  Nevertheless, there was meaningful improvement compared to the beginning of the year.  And, we’re pleased that this year we once again outperformed the Knapp-Track™ same-restaurant sales benchmark – which is a testament to the trust our brands and teams have earned with consumers.  In fiscal 2011, we expect economic and industry conditions to continue to improve.  We also expect to leverage this improvement, with our talented teams and the foundation of trust our brands enjoy, to deliver another year of superior sales results and strong earnings growth.”

Highlights for the quarter and year ended May 30, 2010 include the following:

• Net earnings from continuing operations for the fourth quarter were $116.0 million, or 81 cents per diluted share on sales of $1.86 billion. Last year, net earnings from continuing operations were $122.8 million, or 87 cents per diluted share, on sales of $1.98 billion.  The extra fiscal week contributed approximately six cents of diluted net earnings per share and $124 million in sales last year.

• Total fourth quarter sales from continuing operations of $1.86 billion represent a 5.7% decrease over the prior year (13 weeks vs. 14 weeks).  For the 2010 fiscal year, total sales from continuing operations were $7.11 billion, a 1.4% decrease over the prior year (52 weeks vs. 53 weeks).  

• For the reported fiscal fourth quarter, U.S. same-restaurant sales decreased 1.5% at Olive Garden and 4.6% at Red Lobster while LongHorn Steakhouse’s U.S. same-restaurant sales increased 1.8% (13 weeks vs. 13 weeks).  On a calendar week comparison, which is consistent with how the Knapp-Track™ benchmark is calculated, U.S. same restaurant sales decreased 0.8% at Olive Garden and 1.7% at Red Lobster and LongHorn Steakhouse’s U.S. same-restaurant sales increased 2.3%.  

• The Company purchased over 1.5 million shares of its common stock during the fourth quarter, bringing the total number of shares it repurchased during the year to nearly 2.0 million.

• The Company’s Board of Directors declared a quarterly dividend of 32 cents per share, a 28% increase from the Company’s previous quarterly dividend.

• Net earnings from continuing operations for the fiscal year were $407.0 million, or $2.86 per diluted share, on sales of $7.11 billion.  Last year, net earnings from continuing operations were $371.8 million, or $2.65 per diluted share, for the fiscal year on sales of $7.22 billion.  The extra fiscal week contributed approximately six cents of diluted net earnings per share and $124 million in sales last year.

Operating Highlights

OLIVE GARDEN’S fourth quarter sales of $848 million were 4.8% below prior year (13 weeks vs. 14 weeks), driven by one less fiscal week and its U.S. same-restaurant sales decline of 1.5% (13 weeks vs. 13 weeks), partially offset by revenue from 32 net new restaurants.   On a calendar week comparison, Olive Garden’s fourth quarter U.S. same-restaurant sales declined 0.8%.  For the quarter, on a percentage of sales basis, the company’s decreased food and beverage expenses were more than offset by increased restaurant labor expenses, restaurant expenses, selling, general and administrative expenses and depreciation expenses, resulting in a decrease in operating profit.  Each line item, excluding food and beverage, was adversely affected this quarter on a year-over-year percentage of sales basis by the fact that the fourth quarter last year included an additional fiscal week.  Total fiscal year sales were $3.32 billion, a 1.0% increase from last year (52 weeks vs. 53 weeks).  For the fiscal year, Olive Garden had record total sales and operating profit, average annual sales per restaurant were $4.7 million and U.S. same-restaurant sales decreased 1.0% for the fiscal year (52 weeks vs. 52 weeks).  

RED LOBSTER’S fourth quarter sales of $663 million were 9.6% lower than prior year (13 weeks vs. 14 weeks), driven by one less fiscal week and its U.S. same-restaurant sales decline of 4.6% (13 weeks vs. 13 weeks), partially offset by revenue from four net new restaurants.  On a calendar week comparison, Red Lobster’s fourth quarter U.S. same-restaurant sales declined 1.7%.   For the quarter, on a percentage of sales basis, lower food and beverage expenses and selling, general, and administrative expenses were more than offset by increased restaurant labor expenses, restaurant expenses and depreciation expenses resulting in a decrease in operating profit.  Each line item, excluding food and beverage, was adversely affected this quarter on a year-over-year percentage of sales basis by the fact that the fourth quarter last year included an additional fiscal week. Total fiscal year sales were $2.49 billion, a 5.3% decrease compared to last year (52 weeks vs. 53 weeks).  Average annual sales per restaurant were $3.6 million and U.S. same-restaurant sales decreased 4.9% for the fiscal year (52 weeks vs. 52 weeks).

LONGHORN STEAKHOUSE’S fourth quarter sales of $233 million were 2.5% lower than prior year (13 weeks vs. 14 weeks), driven by one less fiscal week and partially offset by a U.S. same-restaurant sales increase of 1.8% (13 weeks vs. 13 weeks) and revenue from 10 net new restaurants.  On a calendar week comparison, LongHorn Steakhouse’s fourth quarter U.S. same-restaurant sales increased 2.3%.  For the quarter, on a percentage of sales basis, lower food and beverage expenses and restaurant expenses were partially offset by increased restaurant labor expenses, selling, general, and administrative expenses and depreciation expenses resulting in an increase in operating profit.  Each line item, excluding food and beverage, was adversely affected this quarter on a year-over-year percentage of sales basis by the fact that the fourth quarter last year included an additional fiscal week.  Total fiscal year sales of $882 million decreased 0.7% compared to last year (52 weeks vs. 53 weeks).  Average annual sales per restaurant were $2.7 million and U.S. same-restaurant sales decreased 1.9% for the fiscal year (52 weeks vs. 52 weeks).

THE CAPITAL GRILLE’S fourth quarter sales of $64 million were 9.4% above the prior year results (13 weeks vs. 14 weeks), driven by a same-restaurant sales increase of 4.7% (13 weeks vs. 13 weeks) and the addition of three net new restaurants, partially offset by one less fiscal week.  On a calendar week comparison, The Capital Grille’s fourth quarter same-restaurant sales increased 6.9%.   Total sales for the fiscal year were $242 million.  Average annual sales per restaurant were $6.2 million and same-restaurant sales decreased 7.8% for the fiscal year (52 weeks vs. 52 weeks).

BAHAMA BREEZE’S fourth quarter sales of $38 million were 2.9% below prior year (13 weeks vs. 14 weeks), driven by one less fiscal week and partially offset by a same-restaurant sales increase of 1.2% (13 weeks vs. 13 weeks) and the addition of one net new restaurant.  On a calendar week comparison, Bahama Breeze’s fourth quarter same-restaurant sales increased 0.9%.   Total sales for the fiscal year were $130 million.  Average annual sales per restaurant were $5.4 million and same-restaurant sales decreased 2.9% for the fiscal year (52 weeks vs. 52 weeks).  

For the company overall, the sales de-leverage resulting from the extra fiscal week in the prior year combined with the gift card redemptions impact, lowered operating margins by approximately 70 basis points this quarter.  Absent these impacts, operating profit margins would have been favorable to prior year for Darden.

Other Actions

Darden’s Board of Directors declared a quarterly cash dividend of 32 cents per share on the Company’s outstanding common stock.  The dividend is payable on August 2, 2010 to shareholders of record at the close of business on July 9, 2010.  Previously, the Company paid a quarterly dividend of 25 cents per share.  Based on the 32 cents quarterly dividend declaration, the Company’s indicated annual dividend is $1.28 per share, an increase of 28%.

Darden continued the buyback of its common stock, purchasing 1.5 million shares in the fourth quarter.  In fiscal 2010, the Company repurchased $85 million of the company’s stock, or nearly 2.0 million shares.  Since commencing its repurchase program in December 1995, the Company has purchased over 154 million shares for $3.00 billion under authorizations totaling 162.4 million shares.

Darden’s Annual Meeting of Shareholders will be held on September 14, 2010 at the Hyatt Regency Orlando International Airport in Orlando, FL.  The record date for shareholders entitled to vote at the Annual Meeting is July 21, 2010.  

* The shift in the Lent holiday (which began in the fourth quarter last year but the third quarter this year) adversely affected Red Lobster’s same-restaurant sales by approximately 60 basis points in the fourth quarter.

Fiscal 2011 Financial Outlook

“We are assuming that blended same-restaurant sales growth for our three large casual dining brands, Olive Garden, Red Lobster and LongHorn Steakhouse, will be between +2% and +3% in fiscal year 2011,” said Brad Richmond, Darden’s Chief Financial Officer.  “Based on these same-restaurant sales expectations and approximately 70 to 75 net new restaurant openings, total sales growth is expected to be between +5.5% and +6.5%.  With this anticipated sales growth and continued margin improvements, diluted net earnings per share growth is expected to range from +14% to +17% in fiscal 2011.”

Darden Restaurants, Inc., (NYSE: DRI) headquartered in Orlando, Fla., is the world’s largest company-owned and operated full-service restaurant company with over $7.1 billion in annual sales and approximately 180,000 employees.  Darden is recognized for a culture that rewards caring for and responding to people. Our restaurant brands -- Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze and Seasons 52 -- reflect the rich diversity of those who dine with us. Our brands are built on deep insights into what our guests want.