Darden Restaurants(DRI) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company generated $2.7 billion in total sales for the second quarter, a 9.7% increase compared to the previous year, driven by the addition of 78 company-owned Ruth's Chris Steak House restaurants and 45 legacy Darden new restaurants, along with same-restaurant sales growth of 2.8% [10] - Adjusted diluted net earnings per share from continuing operations increased by 21% to$ 1.84, with adjusted EBITDA reaching $403 million [39] - Restaurant level EBITDA improved to 18.8%, which is 230 basis points higher than last year [12] Business Line Data and Key Metrics Changes - Olive Garden's total sales increased by 6.3%, with same-restaurant sales growth of 4.1%, outperforming the industry benchmark by 540 basis points [13] - LongHorn's total sales rose by 7.1%, driven by same-restaurant sales growth of 4.9%, outperforming the industry by 620 basis points [42] - The Fine Dining segment saw total sales increase due to the addition of Ruth's Chris, but same-restaurant sales at The Capital Grille and Eddie V's were negative, reflecting challenges in the Fine Dining category [14] Market Data and Key Metrics Changes - Same-restaurant sales for the industry decreased by 1.3%, while guest counts fell by 4.8% [32] - The company's same-restaurant sales outpaced the industry by 410 basis points, with guest counts exceeding the industry by 370 basis points [10][89] Company Strategy and Development Direction - The company continues to adhere to its strategy focused on significant scale, extensive data and insights, rigorous strategic planning, and a results-oriented culture [5] - The company plans to open approximately 50 to 55 new restaurants and has updated its fiscal 2024 sales guidance to approximately$ 11.5 billion [15] - The company is committed to managing costs effectively while pursuing profitable sales growth, emphasizing a back-to-basics operating philosophy [5][138] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of the business model and the performance of the teams, despite a slightly weakened consumer backdrop [18] - The company anticipates pricing to be significantly below inflation in the fourth quarter, with expectations for a consistent EPS growth rate in the third quarter [44][52] - Management noted that the consumer remains resilient but more selective, with a shift in dining frequency among older demographics [76] Other Important Information - The company reported strong internal guest satisfaction metrics across all brands, with Olive Garden and LongHorn achieving all-time highs [34] - The company is transitioning to a new distribution system to capture supply chain synergies, with plans to complete the transition by March [36] - The company has launched a scholarship program for team members' dependents, reflecting its commitment to employee welfare [37] Q&A Session Summary Question: Thoughts on promotions for the balance of the year given the consumer backdrop - Management stated that current plans for promotions remain unchanged and they are pleased with brand performance [18] Question: Commentary on sales outlook and changes in comp and revenue outlooks - Management noted that while there is some check softness, it is offset by lower inflation, leading to a more conservative sales outlook [20] Question: Insights on pricing at a brand level - Management indicated that Olive Garden has not taken any pricing this fiscal year and does not expect to do so in the near term [23] Question: Performance of the other segment and implications for low-income consumers - Management expressed satisfaction with the overall performance of the other segment, despite negative same-restaurant sales [54] Question: Update on delivery strategy and third-party delivery - Management reaffirmed their decision to stay out of third-party delivery, citing no significant performance difference compared to restaurants without it [71] Question: Trends in Fine Dining and expectations for positive comps - Management noted improvements in Fine Dining sales, particularly in November, and expressed optimism for the holiday season [78] Question: Update on construction costs and willingness to build more units - Management reported that construction costs are in line with expectations and noted an increase in bids that align with project budgets [124]