Q3 2021 Darden Restaurants Inc Earnings Call
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Welcome to the month. Please stay on your line. Please do not touch with everyone and everyone an opportunity. This is being recorded. He's being a few objects. If you have to leave any home is connected to the time disconnected. I will now turn off.
Jack good morning, and thank you for morning and thank you for participating in today's job training on call today or joining me on the call today or your machine lead junk yard in the chairman b e r d n a r d n s c o m m and Rog siapa Nama siapa reminder Commons made reminder during this call may include during this call looking for included performances or looking back. I'm in the private Securities resigned in the privatization require. He's looking back in ninety-four ninety-five Act of 1995 statements be subject statements or risk subject to risks and uncertainties. It causes that could cause actual results actual results to differ materially from the cheerleader expect from our expectations invitations induction projections those risks of a game.
Star just track star just track of these type in the company's please press release was the street which was destroyed this more visibility morning and it's fine and Saturdays and explains with the change commissioner T's and Exchange Commission or Can U sleep with me podcast. This call is impatient, which is put her in his call and which is supposed relations in the investigation or South of the Border website and Garden on certain non-gaap silly a wreck into these facilities from interning cuz he's measured it in the in the presentation. We plan to release just took a twenty one and twenty Twenty-One learning the 4th of June 24th before the June twenty Market aboard Napleton's marked by a dog.
My account this morning this morning with an update on our operating operating finance office recorder fourth quarter.
Anna partial partial look of you going to call over now from the call over to the banks. Good morning. Thanks, I'm pretty good morning. Everyone believe it's hard when a year we'll leave that is depending on the year began began to talk about illness coverage suck reflect everything. Everything is clear to go back trunk revitalization to help Ron, this navigation to help me destroy something out of it this period of unprecedented on and on and on with the power portfolio of the power Brokers. It says activate using our software back to be philosophy property Choi.
And our service and honestly direct was the best of our directors numbers of our team members and their appointment to delivering signal bulb option of experience optional. Best experience. I do you fear in tomorrow tomorrow money? We've been wanting more than a hundred million dollars million dollars wage are people such as programs such as basically sickly.
Ira Michigan focus on Pyromania working focus on priorities priorities that the tablet of Defense to be on set of dependent upon entering the engine save during the hell or team member can say if you get our team members the gas operations operation and finding execute free-flowing technology to improve improve the experience or Transforming Our building our business is model.
The health and safety of the safety of our team members of our team members and guests last remaining or top priority priority.
Throughout the past year our team members and members have done a fantastic job of upholding or something. Our safety protocols safety protocols taking taking off of our take care of our guests. Yes.
Today today, even if even as restricted easy using in some parts of the come parts of the country country. We continue to need to follow our enhanced safety measures.
Did they physically couldn't remember how smart monitoring and growing requiring a member of s pretty easy to do. And social?
Operation wage even if you can give us a brand.
Environment environmentalist operate wage and make decisions and make this we would not have been able to we would not do have been able to obtain a normal do operating normal operating inbox Department.
It's a good example of this work the good example of our friends of dark stream our brands of the menus on the screen and menus and removed and bring them removed or low flow and that affects for lost items that affect this is easier for our restaurant Front Page. Yeah completely I can give you guys or somebody else.
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We all we offer free month in the line of sight curbside to go pick up by rolling rolling out the curbing out of the car, but I'm here a text message that I you know to text message notification can easily easily alert right now with these technology enhanced other events and other improvements help prevent Olive Garden help achieve these New Paltz off a factory radio for delivering. I'm delivering one time and accurate experience experiences is during according according to that included very busy videos. You got paid
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Make great we've made in our digital great truck drives in any over the digital Journey here over the past and you will hear you need to drink we will continue digital digital divide our brand and provide our brand of course with the more effectively.
And finally made our business we've made I mean to simplify our business education process easy efficient and significant have transferred me resulted in any of our business significant travel information of our business model example across our hours of Labor activity has our our leader by overheating labor 20% activity has improved by over some Brands were improving that well over to summer home in such as removing by well over 30% We thought it was just very helpful to provide a bit more insight. We thought it would be helpful. This model provide information has bit more incentive cheddar site into what you know, the business model transformation you today wouldn't has done to the third quarter better, you know better wage.
Quarter 300 based checkpoints batters has grown on a restaurant located by pension over 375.8% a year to date when child reaches 100% of any cyber sales. We expect when scattered restaurant level reaches 100% of to be wealthy people in the High Teens Tales we expect but we don't eat in a restaurant left energy Continuum margin by too slow typical detailing as well in the height or 15 illustration home. I like the what were you doing in this model in our brains are just level of telling us as we have mentioned illustration usually helps highlight simply took this is Marvin across all departments. All of our business. Our brands are made are expected to resolve, you know, hundred fifty basis points of an improvement. We have mentioned with 90% off.
Senate education across all of our business our business model transfer, you know how to leave home of marked value created an improvement you restaurant with not crossed all of new percent of our brand code and still do to this information our business model of the salesman will transform a prior to a page also need our the Springs into our expectations are much lower Lotito today open Vali creating new restaurant. We open 6. All of our restaurants are in a quarter cup do each is it as transfer meeting or affirmation station? The sales are required to before he our River Rock expectation. I want to conclude by today with our team members. In fact that we open Jean said 6 to during the course of the director insulted. They're getting our expectations being of service is at the home.
Business before I hit in our team members over to demonstrate that every day. I want to conclude by saying, thank you.
Including the team member bonus member bonuses this restaurant labor labor would have been able would have been 80 basis point basis points favorable favorable to last year the last year.
The favorable the favorability to last last year. We are was driven by us driven by hourly labor labor Improvement payment of 200 of 280 basis and 80 basis points points. Do you do efficiencies efficiencies gained from paint from operational operational simplification implications ring, Rick discuss discuss
The hourly hourly labor improvement improvement was was partially offset by that by deleveraging management management labor labor do to save you the sales decline decline.
Jean said it's a good morning. Everyone direct result in a $70 in our team members every day 1% to their commitment wage point seven. Thank you to her and thirty-six million dollars. Good morning everyone and delete for the Turning for shared office from continuing operations for sale for 1.723 billion a decrease for Thursday 26th expenses Point 1% points higher than less same last year in sales primarily decrease driven by 26.27% quality and Main
You'd be the best friend label as to her was twenty eight point five million dollars in bonuses display this quarter.
excluding the
Restaurant expense expense for operating for operating week was leaked or 16% lower than lower than last year. / / lower lower workers compensation compensation kitchen utilities facilities repair repairs and maintenance and maintenance extent that the percent of the percent of sales sales rep was two hundred two hundred fifty fifty basis points higher and higher than last year last year. You you to sales.
Marketing marketing Spanish in Spanish was was fifty-two million two million dollars lower than our slower than last year last year with total with total marketing marketing 208/230 point-to-point favorable favorable to last year the last year.
This all this all resolved 1313 restaurant level and level of margin of 84.4% 10 only only 1,150 based fifty basis points below low points below last year.
Excluding excluding the one-time one-time hourly hourly team member bonus number bonus.
Restaurant restaurant. Margin without margin would have been would have been even stronger even stronger at night at nineteen Point 15.4% 4%
William William paid one yard one Yard House Restaurant. This is restaurant this quarter quarter resulting in resulting in a non-cash non-cash impairment impairment charge of charge of three million dollars million dollars a month.
This location this location was in was in Portland, Oregon and Oregon and had and had been temporarily been temporarily closed in be closed since April April.
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The Marked reported expand is related to significant appreciation in both the datasphere price and Equity Market disorder and due to the way we had this expanse it is mostly
on an after-tax basis
page thirteen of this sort of presentation illustrates the eight point eight million dollars reduction of operating income and corresponding operating income margin reduction of fifty basis points from what the market expense or hedge reduce income tax expense by seven point two million dollars resulting in a net reduction to earnings after tax this quarter of one point six million dollars.
New tax rate of 2.3% is quarter was unusually low due to two factors plus the tax benefit from the Deferred Compensation hedge. I just mentioned that you took tax rate by five percentage points second the stock option exercises this quarter drove approximately 7 million dollars of excess tax benefit reducing the tax rate by 4.5 percentage points after adjusting for these factors are normalized effective tax rate for the third quarter would have been 12.1%
Looking at our technician performance this quarter Olive Garden segment profit margin increased versus last year despite sales declined our continued focus on simplified operations, which see if he can lie reduced direct labor combined with lower marketing expenses drove this margin Improvement.
Segment profit margin declined for Longhorn as higher-than-average beef inflation and other Investments drove higher food and beverage expense in addition both labor and restaurant expenses were hired as a percent of their wages due to sales deal hours.
Segment profit margin declined for fine dining and other segments do to deal average across the p&l from the significant sales decline year-over-year.
We generated over $240 of free cash flow this quarter ending the third quarter with over $990 in cash a recent performance has given us better visibility into the durability of or cash flows. Therefore. We will return to our fifty to sixty percent dividend payout Target applied to Future earnings to determine our dividend to that off the board quite a quarterly cash dividend of eighty eight cents per share matching or prequel with dividend level.
The ability to resume ecobee dividend levels just 12 months 12 months after suspending. It is a testament to the strength of our business model and the durability of our cash flows home. And finally today. We announced a new share repurchase authorization of five hundred million dollars, which replaces all previous authorizations.
Turning to the fourth quarter. As of today. We have ninety-nine per-cent of our dining rooms open with some capacity this morning. We provided sales trend for the first three weeks of the quarter. In fact, we saw week-to-week sales Improvement as a vaccine roller progress dining room capacity increased and consumers began receiving similar said taking their all into consideration am currently except for the fourth quarter total sales of approximately 2.1 billion dollars ebit between 345 million and 360 million and 2 am not running for Sheriff from continuing operations between $1.60 and $1.70 on a diluted share base of hundred thirty two million shares.
We've also updated our full-year outlook for Capital expenditures to be between 285 million and 295 million dollars and we anticipate opening 33,000 net new jobs for a year.
We continue to believe we can achieve Pico Bolivar dollars or 90% of sales resulting in hundred fifty basis points of ebitda margin growth and one or two for Outlook Falls within this month.
As we move beyond the fourth quarter, there are additional costs such as training travel broadcast incremental marketing and other Investments that we expect will need to come back into the p&l.
And while it's too early to provide insight into sales and earnings we did want to provide some preliminary guidance for a few items. We expect total Capital spending between $350,400 and open approximately 35% interest for 22. We also anticipated effective tax rate in the range of calls to 13% for fiscal 2018. And with that will open it up for questions.
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At this time, if you'd like to ask a question, please press star one on your telephone keypad. Again. That's star one on your telephone. Please limit yourself one question and one follow-up to allow everyone an opportunity will pause for a moment to pull the queue a roster.
David Palmer with your line is open Banks just a clarification first the that rubric or thinking about a hundred fifty thousand points of margin expansion permanently did that contemplates labor Investments that you're making that a clarification would be helpful. But my question is really about the the the seating currently and you're thinking about the meaningfulness of recent weeks the seating capacity, you know, you mentioned you have partial dining rooms in ninety-nine percent of the wage restaurants our locations, but how much of of the seating is available current in how much do you think that that is holding back and Dean and you know, my my phone now, I'll just stay right now. It looks like these these off-premise numbers are are very strong. The mix very high will get more comfortable.
Are you rethinking the stickiness of that off-premise business and I'll pass it on thanks. Good morning, David. Yes, the labor Investments. We made is is embedded in the hundreds of this point Improvement. We think we can make at 90% of sales. So that that is inclusive there. Let's talk about the dining room capacity. Basically the way our dog laid out Longhorn has an advantage over Olive Garden and it utilization because of because of the number of boots, but the way to think about it is, you know, we're we're we're somewhere between fifty and sixty percent capacity inside the dining room depending on the particular floor plan. And so they're still limitations of availability inside our restaurants down for calling the CDC guidelines. It doesn't matter what what the local municipalities are doing and we believe right now. It's in our best interest. Our team members best interests with the priority of their health and safety issue.
Our team members in our guests to continue to follow the CDC guidelines. And so think about our dining room somewhere between fifty and sixty 65% depending on the individual floor plan off from the stickiness. Let me just let me start off by saying I am incredibly impressed with what our team is done to improve our capabilities in the off-premise experience. The digital experience is getting better every single day. It's being adopted. I thought you know in Rick's prepared remarks. He talked about 19% of our total sales now being digital. I think that's really impressive. I do believe that as more as we get offer more capacity and we see this individual restaurants that the off-premise will start to push start to fall off. I think why the capacity is limited and and there's still a lot of people out there that aren't fully vaccinated. They're still good demand for the off-premise. Yep.
I believe that.
Because of our capabilities that we've developed during this during the pandemic and our vision for all those capabilities will continue to improve in the future that our off-premise business will still be robust when it's all said and done I can't tell you today what that percentage is going to be.
Thank you.
Dennis tiger with UBS your line is open.
Great. Thanks for the question. I wanted to ask a bit more about any kind of regional differences. You know that you might be seeing I think you know you gave color there on on CDC guidelines being being the boss has the strength in in in most cases for your restaurant. But but curious, you know by by region by state if you're seeing, you know, a notable difference in Performance Based on those States restrictions, you know, and then just kind of following up on that offer a related to off-premise where you do have, you know, greater capacity in in select restaurants or or States if that often does look a whole lot different than it than it does across the system on average. Thank you. Well, obviously, we're only at 25% capacity in California, which is you know, that's pretty restrictive there. So, you know, yeah, I'll take a percentage is higher in California wage, you know, so I would say there's still pressure on the coast both ghost, especially the north North East part of the country. You're still seeing Mobility not as not as great as it is and what I would call log
From Arizona all the way over to Carolina where I think Mobility is is much greater than the consumers much more willing to to get out and move around. So there's different package details there but every day, I mean, this is very Dynamic but this is this is changing daily as more and more people get vaccinated more and more people get become confident in their ability to be mobile and it's getting to the point where you know, I think we're we're cautiously optimistic and excited about what's going to transpire here over the next few months and maybe a few years.
Great. Thank you.
Jeffrey farmer with boards basket your line is open. I'm sorry. Just looking for a little bit of a follow-up call here. So in just in terms of looking at the Gorge sales, I'm curious what you've learned in terms of the nature of these customers are they are they new customers that are are there new customers or they existing customers driving increased frequency. I'm just curious what you guys are seeing in terms of of who's actually driving these very strong to go sales levels.
Hey Jeff, it's Rick. Thanks for the question in regards to the to go sales and who's driving it, you know at the start of the pandemic. We saw a lot of new customers a lot of new ones coming and then hadn't been to our restaurant before and the frequency with which they reordered was pretty high, but we're still seeing those new customers, but everybody is ordering to go right if you come into the dining room and the dining room. Just walk over to the gas station and order but the frequency of our newer customers is was higher and is higher than the frequency of our existing customers. We are really happy with what we've done is being mentioned with with with the technology that we to go business. It is helping to get some younger people are restaurants or to order to go what we've done with car side to go and curbside. I'm here with it so much easier for people to come pick up and said we would feel really good about the customers were we're getting and the information we're gleaning from them.
Thank you.
Jake Bartlett with true security your line is open great. Thanks for taking the question.
my first one is just that the comment about the fifty to sixty percent passing in terms of following the CDC guidelines, you know as we look at restricting Beijing across the country, you know, you guys do they really mayonnaise or we just really think about just the overall guidance of the CC, you know about your capacity and increasing
Yeah, I mean, I think it's a very interesting question. I think we're hoping to CDC comes along with with the consumer and the consumer Behavior. We feel right now, it's still it's still prudent to do all that all that guidance. You know, there may be a point where we determined that guidance is out-of-date and with the consumer in a certain market place, but what you know, it's too early to tell right now we