Bahama Breeze

- Third quarter sales of $31.1 million were down by 2.2% from last year due to same-restaurant sales decrease of 2%.
- Despite the comparable decrease, the performance continues to be superior versus the industry as measured by Knapp-Track.
- Over the past two years, the company has worked on improving the guest experience, increasing restaurant level returns and broadening the brand’s appeal.

The Capital Grille

- Third quarter sales were 11.9% stronger at $67.6 million compared with last year.
- The increase was driven by the addition of five net new restaurants.
- The same-restaurant sales decreased by 2%.
- The average weekly sales continued to be strong during the quarter with average unit volumes of about $8.5 million.
- The level of traffic has softened particularly during weekends. This is partly a result of the negative weather during the quarter.

- Seasons 52 is a uniquely positioned brand with strong guest acceptance.
- The average unit volumes were in excess of $6 million and management is please with the performance.

The third quarter margin analysis included the RARE Hospitality acquisition and excluded result from the closed Smokey Bones and Bahama Breeze restaurants.

- Food and beverage expenses were 146 basis points higher than last year on a percentage of sales basis. The addition of RARE Hospitality account for about 140 basis points of the increase and the remainder relates to commodity cost increases.
- Restaurant expenses for the quarter were 83 basis points lower than last year on a percentage of sales basis. An approximate 36 basis points of the increase is a result of the addition of RARE Hospitality.
- SG&A expenses were 28 basis points lower as a percentage of sales during the quarter. The decrease was a result of sales leveraging and reduced media expense.

The company bought back more than 3.8 million shares of its common stock.

- Since the commencement of the repurchase program in December 1995, the company has bought back about 147 million shares for $2.8 billion under authorizations, totaling 162.4 million ordinary shares.
- The management anticipates buying back between $150 million and $175 million worth of its common stock in the fiscal year 2008.
- In fiscal 2009, the company expects to return an increasing amount of the strong cash flows to shareholders through share repurchases. This is expected to lower the share base and support strong EPS growth.

The declared quarterly dividend is payable on May 1, 2008 to shareholders recorded in the books of the company at the close of business on April 10, 2008.

Fiscal 2008 Financial Outlook:

- The combined U.S. same-restaurant sales growth for fiscal 2008 is forecast to be in the range 2% to 3% for Red Lobster, Olive Garden and LongHorn Steakhouse.
- The company expects 60 net new restaurants in the current year, inclusive of new restaurants at LongHorn Steakhouse and The Capital Grille through to May 2008.
- The management expects total sales growth of about 19% to 20% in 2008 from the $5.57 billion in 2007. The 2008 growth includes sales from LongHorn Steakhouse and The Capital Grille.
- The company affirmed that diluted net EPS growth from continuing operations will be in the range 2% to 4% in fiscal 2008. This includes integrated-related costs and purchase accounting adjustments associated with the RARE acquisition. The costs are forecast to negatively impact diluted net EPS growth by about five to six percentage points in the next year.
- Excluding the transaction and integrated-related costs and purchase accounting adjustments, diluted net EPS growth from continuing operations is anticipated to be between 7% and 9% in fiscal 2008.
- The effective tax rate is estimated to be about 28.5% for fiscal 2008.

Key questions and answers from the third quarter fiscal 2008 earnings call conducted by Darden Restaurants Inc. on March 19, 2008.

Steven Kron (Goldman Sachs): SG&A is significantly lower than what you report in the second quarter as a percentage of revenues. The full year guidance is below 10% as a percentage of revenues. Can you comment on that? Are these faster-than-expected synergies coming out of that line, in which case should we expect a lower number for the year?

Brad Richmond: In terms of the guidance for the year, that wouldn’t change. This is not an area where we are seeing some of the synergies in our planning process that we would achieve quicker than the others. They are easier, quicker and timelier to act upon. That’s on track with the expectations and the guidance we gave out in mid-February.

Jeff Bernstein (Lehman Brothers): Can you comment on your EPS relative to the most recent near term annual guidance outlook of 9% to 12%? In terms of units for next year, expenses, specifically labor and COGS, do you have any insights into what it’s looking like a couple of months from now?

Brad Richmond: Not much has changed since the analyst day when we shared with you the long-term business model. Some of the near-term pressures would take that on an annualized basis down to the 9% to 12% range. In terms of actual outlook for next year, we really are going to wait until June and certainly the business momentum in the fourth quarter will be a big factor.

Jeff Bernstein (Lehman Brothers): The Olive Garden comparable outperformed Knapp-Track by close to 9 percentage points, putting up close to a 6% in comparison. The higher items included food and beverage, restaurant labor, and restaurant expenses as a percentage of sales. With such a strong comp, I would have expected leverage to be down year over year in terms of those specific components. Is there anything unique in any of those line items?

Clarence Otis: There was strong operating profit growth at Olive Garden. At the Darden level, the blended comparable was about 1.3% and a solid blended comparable, especially compared to an industry that was down 3%. We think the operating profit leverage that we got out of that is what you would expect out of 1.3% on the total enterprise basis, a little bit more in this environment than you might otherwise expect because of some of the acquisition synergies.

Joseph Buckley (Bear Stearns): Concerning Olive Garden, where the comparable was about 6%, why would labor and restaurant operating expenses be up as a percent of sales?

Brad Richmond: Firstly, given the environment that we are in and the pressures that we are facing, we are pleased with Olive Garden''s performance. The higher number of restaurant openings and the initial inefficiencies and pre-opening costs that you incur with those also influence those lines rather significantly.