Key questions and answers from the fourth quarter fiscal 2008 earnings call conducted by Darden Restaurants on June 25, 2008.

John Glass (Morgan Stanley): Your 52-week guidance is 7% to 8% earnings growth and about 9% to 12% for February in a tougher operating environment. Has the environmental change from February to now gotten much worse from a cost perspective? Is your view different on a top line basis?

Brad Richmond: You are right on both points. It’s a little bit of the tougher consumer environment and so when we talk about our same-restaurant sales performance, we are currently seeing a little less than what we talked about back in February and the cost environment continues to be challenging. We are close to that but a little bit up from there and so those are the real two driving factors that lead us to the guidance we have today.

John Glass (Morgan Stanley): Your buy-backs in 2009 of around $200 million were less than your longer term goal of $350 million to $400 million. Is this a lower buy-back than you initially had expected this year given the operating environment?

Brad Richmond: The guidance that we had at the time was that once we get two to three years out past the acquisition, we would then return to our normal buy-back amount. We do anticipate it will take us a couple of years to get our debt metrics solidly in the range that we want them to be, principally on debt to adjusted capital of about 55% to 65% and so we are moving close with this guidance to the middle of that range. On a debt-to-EBITDAR calculation, where we’d like to get that closer to 2, we’re a little bit above that. Thus, if we look at where we are today, we’re probably just a little bit longer from returning to more normalized share repurchase approach.

Steven Kron (Goldman Sachs): Olive Garden seems to be the area where you are seeing more cost pressures with the strong same-store sales margins flat on a year-over-year basis. In May, we saw the up-tick in pricing and probably the most price you’ve ever had in the Olive Garden menu over the last seven or eight years. Given the value proposition that this brand has, how are you handling that price, where are you taking it and what is the sensitivity to the guest on price?

Andrew H. Madsen: We are very sensitive to maintaining Olive Garden's breadth of appeal for a variety of guests and a variety of occasions and also maintaining value leadership in this environment or any environment going forward.
Olive Garden has this year experienced more cost pressure than in the past. Earlier on in the year, it was more wheat. In the fourth quarter, it was more dairy and it did take some pricing in May. However, it isn’t fundamentally different from what they took the prior year. We look at taking pricing in two ways: one, maintain our relative positioning in the market versus our key competitors and maintain broad price point accessibility; and second, balance that with the cost pressure and try and take enough pricing in addition with active cost management to cover the dollar inflation. That’s what we’ve been able to do with Olive Garden and Red Lobster, but the pricing isn’t meaningfully different from what they did in recent history.

Jeff Bernstein (Lehman Brothers): At Longhorn, there has been some labor leverage against a 3% comp decrease whereas an Olive Garden sees a strong 6% comp and has labor pressure. Can you give additional detail in terms of the benefits from the Longhorn labor model and how you see that best transferring such benefits to Olive Garden and Red Lobster?

Andrew H. Madsen: One of the benefits that Longhorn is capturing now is a wage management program that they’ve been using to help offset wage pressure inside the restaurant. It’s a more disciplined tip share program than they’ve had in the past. As that progresses and as we see results of that more broadly in more restaurants, that’s something we can look at in all of our restaurants. There is therefore potential to see if that applies in a Red Lobster or an Olive Garden.

Michael Vanetti (UBS): It’s becoming clear that the tax rebates have been providing a boost to the industry and to Darden. Is it reasonable to think that there may be an opportunity to get more optimistic with the 2009 guidance once you see how sales hold up after the rebates?

Clarence Otis: It’s probably not reasonable. What we saw in May is hard to gauge. We do get weekly Knapp-Track numbers and our best guess as we look at that data is probably in May a lift of maybe a point on a same-restaurant sales basis. But that data does not reflect the run-up that we’ve seen in June in some of the cost that consumers are facing, especially gasoline. We would therefore say there’s still enough going on out there to be fairly cautious. That would be our stance on it and our 2009 traffic assumption would be a click down of about half a point or so from what we were talking about in February. On a net cost basis, in February we talked about net cost inflation of a point after active cost management and probably a point higher than that is what we are thinking about for the fiscal year. We are approaching what is a relatively uncertain environment with some caution and that probably is a wise way to approach it.

Michael Vanetti (UBS): You commented that despite the slightly lower revenue at Red Lobster, the operating profits were actually higher. Could you give us detail on some of the efforts at that chain that are helping boost the profitability with the sales flattish and then to slightly down? What is your expectation in the cost management at that chain this year?

Brad Richmond: Red Lobster had a strong quarter with increased leveraging at the restaurant level. A lot of it was driven by what happened on the food and beverage line. Their largest component is seafood plus their promotional activity. They use all those to their advantage and really had the opportunity to take a flattish sales basis and good active cost management to increase returns at the unit level.

Clarence Otis: The team has been improving basic operations for the last four years. They continue to try to take cost out of their operations that don’t matter to the guest.

Larry Miller (RBC Capital Markets): Did you say that you saw continued run-up in June?

Clarence Otis: No. What I was saying was that what we saw in the industry, the point that we think might be attributable to some of the stimulus checks was May results and that came before the most recent run-up in oil and gasoline. It therefore remains to be seen how that affects the stimulus dynamic that we saw in May.

Larry Miller (RBC Capital Markets): Can we get some more detail on some of those cost management areas that you briefly touched on?

Andrew H. Madsen: We comprehensively look at our entire business. We look at food, labor and G&A expenses. Inside each business, we’ve got multi-function teams that work on identifying costs that have crept into the business and are no longer adding value and test taking those out. We’ve gotten better at managing costs related to workers’ compensation, slips and falls in restaurants, public liability and so on.
It really is across the business and we will continue to do that in fiscal 2009 which involves looking at fundamental ways we can take cost out of how we structurally support the business going forward while making sure that there’s no detrimental impact to the guest experience.

John Ivankoe (J.P. Morgan): In the fiscal 2009 development guidance, you took up Red Lobster, especially relative to 2008 and you took down Longhorn. It does seem a little bit counter-intuitive given that Longhorn would probably benefit the most from more new unit penetration especially as you try to achieve national advertising. What is your comment and what needs to be fixed at Longhorn to start driving comps at that business?

Clarence Otis: We remain very confident that Longhorn is going to be a significant growth vehicle for Darden. In the near-term, in fiscal 2009, net new unit openings are down modestly, which is more a reflection of organization capacity and focus on integration as well as applying some of the Darden site selection tools to the business that didn’t exist before at RARE. It’s more a reflection of those tactical adjustments than it is a change in our thinking about what the ultimate unit potential is.
Going forward, we can open more than 20 a year once some of those dynamics are passed us. What we have to do is take a brand that we think is fundamentally sound in the steak category; one that’s got solid operations and then strengthen some of the brand management fundamentals. It’s not unlike where Red Lobster was a couple of years ago. We need to broaden appeal of the business and really are looking at menu and building and what the brand stands for. That’s why we’ve worked so hard over the last couple of months to strengthen the brand team at Longhorn. There’s a new head of marketing, Terry Stanley. There’s a new head of culinary and beverage, Kurt Henkens. There’s a new head of consumer insights, Brad Marcunis. We’ve brought on Gray Advertising to help with the repositioning work in the advertising. As you know, Gray has been a valued partner at Olive Garden for some time. We’ve brought on Zenith Media to help us look at how we purchase and traffic spot media more efficiently and some other innovative opportunities to expand reach there in the near-term.
What has to happen is build on a solid operations foundation, broaden relevance with particular focus longer term on menu and building.
Some of the other things around advertising and promotion can start to have an impact more mid-year in fiscal 2009.