Red Lobster:
- The fourth quarter sales of $687 million were 0.5% below last year.
- The U.S. same-restaurant sales declined 0.2%.
- On a percentage basis, lower food and beverage expenses, restaurant expenses and SG&A expenses more than offset the company’s increased restaurant labor expenses resulting in an increase in operating profit.
- According to the management, Red Lobster had record total sales for the year.
- The total sales increased 1% to $2.63 billion from last year.
- The average annual sales per restaurant were $3.9 million whilst the U.S. same-restaurant sales increased 1.1% for the fiscal year.
LongHorn Steakhouse:
- The Q4 sales were recorded at $225 million, 6.5% above the same period included in RARE’S prior year results.
- The sales increase was driven by revenue from 24 net new restaurants but partially offset by a same-restaurant sales decrease of 3.1%.
- For the quarter, on a percentage of sales basis, the company’s increased food and beverage expenses, restaurant expenses and SG&A were partly offset by lower restaurant labor expenses.
- The restaurant expenses, SG&A expenses and depreciation and amortization expenses were adversely affected by integration-related costs and purchase accounting adjustments.
- The total sales increased 6.9% to $575 million versus the same period last year.
- The average annual sales per restaurant were $2.9 million and the U.S. same-restaurant sales dipped 1.9% for the fiscal year.
The Capital Grille:
- The fourth quarter sales of $65 million were 11.8% above the same period included in RARE’s prior year results.
- The increase was driven by the addition of four net new restaurants but partially offset by a same-restaurant sales decrease of 3.8%.
- The total sales since the acquisition were $170 million.
- The average annual sales per restaurant were $8.1 million and the same-restaurant sales decreased 1.1% for the fiscal year.
Bahama Breeze:
- The quarterly sales of $37 million were 3.85 below last year’s sales from continuing operations.
- The decrease was a result of a 3.7% drop in same-restaurant sales.
- The total sales for the full year were $135 million and average annual sales per restaurant were $5.9 million.
- The same-restaurant sales decreased 1.8% for the fiscal year.
Fiscal 2009 Guidance:
- The company expects combined U.S. same-restaurant sales growth of about 2% for Red Lobster, Olive Garden and LongHorn Steakhouse.
- The management anticipates opening 75 to 80 net new restaurants in fiscal 2009.
- The total sales growth in fiscal 2009 is forecast to be in the range of 14% to 15% versus sales from continuing operations of $6.63 billion in fiscal 2008.
- The total sales growth includes 2% impact of the 53rd week in 2009; excluding the extra week, the expected total sales growth would be approximately 12% to 13%.
- The diluted net EPS growth from continuing operations is projected to be in the range 14% to 15% in fiscal 2009.
- This includes the impact of the 53rd week. This compares with reported diluted net EPS from continuing operations of $2.55 in fiscal 2008.
- The additional week is expected to contribute about 2% or 5 cents growth in fiscal 2009.
- Excluding the estimated integration costs and purchase accounting adjustments of about 10 cents in fiscal 2008, net earnings from continuing operations were $2.74 per share.
- In fiscal 2009, these costs and adjustments are estimated to be approximately 6 cents to 7 cents per share.
- Excluding the impact of these costs and adjustments for both fiscal 2008 and 2009, the company expects diluted net EPS growth of 9% to 10% on a 53-week basis and 7% to 8% on a 52-week basis.
- The company expects to repurchase approximately $200 million to $225 million of its common stock in fiscal 2009.
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?
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