Q1 2022 Darden Restaurants Inc Earnings Call
22 first quarter earnings call.
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I will now turn the call over to Mr. Kevin Kallikak.
You may begin.
Thank you Kevin Good morning, everyone and thank you for participating on today's call.
Joining me on the call today are gene Lee Darden's, Chairman and CEO, Rick Cardenas, President and COO Raj <unk> CFO as a reminder comments made during this call will include forward looking statements as defined in the private securities.
Securities Litigation Reform Act of 1095.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning and in its filings with the Securities and Exchange Commission, we are simultaneously broadcasting.
Information during this call, which is pushing the investor relations section of our website at Darden Dot com.
Today's discussion and presentation will include certain non-GAAP measurements and reconciliations of these measurements are included in the presentation.
Any reference to pre Covid when discussing first quarter performance as a comparison to the first quarter of fiscal 2020. This is because last year's results are not meaningful due to the pandemics impact on the business and the limited capacity environment that we operated in during the first quarter of fiscal 'twenty one.
We plan to release fiscal 2022 second quarter earnings on Friday December 2017, before the market opens followed by a conference call.
This morning gene will share some brief remarks on the first quarter results, Rick will give an update on our operating performance and Raj will provide more detail on our financial results and an update of our fiscal 'twenty two.
Financial outlook now I will turn the call over to Jim.
Thank you Kevin and good morning, everyone. As you saw from our release. This morning, we had a very good quarter. Our teams continued to operate effectively in a challenging environment and I'm proud of their focus and ability to deliver another quarter of strong sales and profitability.
All of our segments delivered record first quarter profit.
Our ability to drive profitable sales growth is a testament to the strength of our business model and our continued adherence to this strategy, we implemented six years ago.
Our brands remain laser focused on executing our back to basics operating philosophy anchored in food service and atmosphere, while at the Darden level, we concentrate on strengthening and leveraging our four competitive advantages of significant scale extensive data and insights rigorous strategic planning and our results oriented.
Sure.
Our first quarter sales trends darn strong us momentum carried over from the fourth quarter and a further strengthened and peaked in July.
However in August sales slow due to the impact of the Delta variant, but remain positive relative to pre COVID-19 levels for.
For the first quarter sales per operating week were up four 8% relative to pre COVID-19 and through the first three weeks in September sales per operating week were up approximately 7% relative to pre COVID-19.
Regardless of the operating environment, our unwavering commitment to our strategy ensures we'll stay focused on what we do best providing exceptional guest experiences.
Throughout this unique period, our operators have shown tremendous flexibility while remaining locked in on the fundamentals of running great restaurants.
At the same time, our focus helps us continue to find ways to make our competitive advantages work even harder for us.
One of the ways. We do this is by leveraging our ability to open value, creating new restaurants.
We opened seven new restaurants during the quarter, all of which are exceeding our expectations and.
And we remain on track to open approximately 35 to 40, new restaurants this fiscal year.
Our long term framework calls for two years to 3% sales growth from new restaurants.
Given our strong stronger unit economics, our development team is working hard to build out a pipeline of locations for fiscal 'twenty, three and beyond that would put us at or above the higher end of our framework.
Before I turn it over to Rick I want to thank our team members in our restaurants and our support center as.
As I visit our restaurants and talk with our teams I am constantly reminded why our people are our greatest competitive advantage their passion for being of service to our guests and each other fuels our success Rick.
Thank you gene and good morning, everyone.
Our success this quarter was driven by the work we have done to simplify our processes and our menus to drive execution at the highest level. We also paused any new initiatives in order to further eliminate distractions for our restaurant teams and allow them to focus on what it takes to run 14, great shifts a week.
In addition to go sales continue to benefit from the ongoing evolution of our digital platform with.
This platform makes it simpler for our guests to visit order pay and pickup.
All while making it easier for our teams to execute at the highest level both in the dining room and off premise.
This served our team as well as to go sales remained high through the quarter.
For the quarter off premise sales accounted for 27% of total sales at Olive garden, and 15% of total sales at Longhorn Steakhouse.
Digital transactions accounted for 60% of all off premise sales during the quarter and guest satisfaction metrics for off premise experiences remains strong.
As we navigate short term external pressures our focus is simple we must continue to win when it comes to our people and product.
From a people perspective, the employment environment is challenging that's why our top priority during the quarter with staffing our restaurants, our operators and HR teams have done a great job sourcing talent.
We recently launched a new talent acquisition system that helps increase our pool of candidates by allowing applicants to apply and schedule an interview in five minutes or less.
Additionally, our brands are successfully utilizing their digital platforms, including social media to promote our employment proposition and drive applications.
As a result, we are netting more than 1000, new team members per week and our team member count is approximately 90% of our pre COVID-19 levels.
The biggest operational challenge we've been dealing with is a temporary exclusion of team members identified through contact tracing.
Given our commitment to health and safety, we are diligent about exclusions, but they create sudden staffing disruptions for our operators.
Being appropriately staffed and the majority of our restaurants. These exclusions reduce the number of available team members with little notice for our operators to prepare this.
This volatility can negatively impact sales in these restaurants for the duration of the exclusion period.
Getting and staying staffed also requires a strong focus on training.
As we continue to hire it is critical that we have the right training in place to ensure we continue to execute at a high level.
That's why our operations leaders are validating the quality of our training during their restaurant visits and sharing new team new team members receive the appropriate amount of training and successfully complete required assessments.
Our team members are the heart and soul of our business and we are constantly focused on our employment proposition. The investments we have made and continue to make in our people are helping us retain and attract top talent and I am confident in our ability to address our staffing needs.
When it comes to product are significant scale, including our dedicated distribution capabilities enables us to manage through the challenges affecting the global supply chain and maintain continuity for our restaurants.
Our supply chain team continues to work hard to ensure we successfully manage through any spot outages, we encounter in our restaurants have the key products they need to serve our guests.
During the quarter, we had to secure more product than usual on the spot market because our brands exceeded sales expectations and some of our suppliers experienced capacity challenges.
Raj will share more details in a moment, but these higher sales volumes as well as freight costs have contributed to higher than expected inflation.
Our scale advantage provides the opportunity for us to price below our competition and inflation, which is a strategy we have executed successfully.
Our competitive advantage of extensive data and insights allows us to be surgical in our pricing approach.
Positioning us well to deal with these higher costs and maintain our value leadership.
The rich insights, we gather from our analytics help us find the right opportunities to price in ways that minimize impact to traffic over time.
We still expect pricing to be well below the rate of inflation for the year further strengthening our value proposition.
Ensuring our restaurants are appropriately staffed in our supply chain continues to avoid significant disruptions will be the most important factors of our continued success in the short term.
To wrap up I also want to recognize our outstanding team.
I'm inspired by the dedication and winning spirit that our leaders and team members both in our restaurants and in our support center continue to demonstrate.
Thanks to each of you for all that you do to continue to create exceptional experiences for our guests now I'll turn it over to Raj.
Thank you Rick and good morning, everyone.
Total sales for the first quarter were $5.0 billion 50.
51% higher than last year, driven by 47, 5% same restaurant sales growth and the addition of 34 net new restaurants.
Diluted net earnings per share from continuing operations were $77.0
We returned approximately $330 million to our shareholders this quarter paying $144 million in dividends and repurchasing $186 million in shares.
We had strong performance this quarter, despite increased inflationary pressures with EBITDA of $370 million and EBITDA margin of 16% 250 basis points higher than pre COVID-19.
Sales results were better than expect Theyre, requiring us to go out and purchase more product on the spot market.
In particular, our proteins as our longhorn and fine dining segment has the largest sales outperformance versus our expectations.
The market for proteins. This quarter was very strong with spot premiums as high as 30% of our contracted rates.
This resulted in higher average cost per pound for all proteins contributing to total commodities inflation for the quarter of approximately five 5%.
Given the heightened attention on inflation I want to clarify that we use the conventional approach to calculating the rate of inflation.
What only measuring change in average price holding product mix and usage constant we followed the same approach for calculating wage inflation rate in which we keep the hour and job mix constant and only look at Canyon made.
While we expect higher rates of inflation to persist for the remainder of the year versus what we initially plan, we believe our scale and recent enhancements to our business model enable us to Delaware significant margin expansion, while still adhering to our strategy of pricing below inflation.
Now looking at the P&L for the first quarter of 2022, we're providing a comparison against pre COVID-19 results in the first quarter of 2020, which we believe is a more comparable more comparable to normal business operations and how we've been talking about our margin expansion.
For the first quarter.
Food and beverage expenses were 150 basis points higher driven by investments in both food quality and pricing significantly below inflation.
Restaurant Labor was 110 basis points, lower driven primarily by hourly labor improvement due to efficiencies gained from operational simplification and was partially offset by elevated wage pressures.
That's fair and expenses also 110 basis points lower due to sales leverage.
Marketing spend was $45 million lower resulting in 220 basis points of favorability.
As a result restaurant level EBITDA margin for Darden was 29% 290 basis points better than pre COVID-19 levels.
G&A expense was 30 basis points higher driven primarily by approximately $10 million of stock compensation expenses related to the immediate expensing of equity awards for retirement eligible employees. Additionally, we had approximately $5 million of expense related to mark to market on our deferred.
<unk>.
As a reminder.
As a reminder, due to the way we had this expense it's largely offset on the tax line. These impacts were partially offset by savings from corporate restructuring implemented in fiscal 2021.
Our effective tax rate for the quarter was 12, 6%, which benefited from the deferred compensation hedge I just mentioned, excluding this benefit our effective tax rate would have been closer to the top end of our guidance range for the year.
Turning to our segment performance first quarter sales at Olive garden were flat to pre Covid, while segment profit margin increased 220 basis points.
This was strong performance, despite elevated inflation and two year check growth of only two 4%.
Longhorn had the best sales performance across our segments with sales increasing by 26% versus pre COVID-19, while growing segment profit margin by 250 basis points.
Sales at our fine dining segment increased 24% versus pre Covid and what is traditionally the slowest quarter from a seasonal perspective.
Segment profit margin grew by 490 basis points, driven by strong sales leverage and operational efficiencies, which more than offset double digit commodity inflation.
Our other segment grew sales by nearly 5% and segment profit margin by 360 basis points.
We continue to be excited about the long term prospects of this segment as it's driving the strongest underlying business model improvement of all our segments.
Finally, turning to our financial outlook for fiscal 2022 based.
Based on our performance this quarter and expected performance for the remainder of the year, we increased our outlook for the full full year. We now expect total sales of $13.0 billion to $15.0 billion.
Representing growth of 7% to 9% from pre Covid levels Sandra.
Same restaurant sales growth of 27% to 30, 30% and 35 to 40 new restaurants.
Capital spending of $375 million to $425 million.
Total inflation of approximately 4% with commodities inflation of four 5% and total restaurant labor inflation of five 5%, which includes hourly wage inflation of about 7%.
EBITDA of 154 billion to $7.0 billion.
And annual effective tax rate of 13% to 14% and approximately 131 million diluted average shares outstanding for the year.
All resulting in diluted net earnings per share between $32.0, and $67.0
This outlook implies EBITDA margin growth versus pre Covid in line with our previous outlook is higher sales are helping offset elevated inflation.
Before we open it up for questions I want to remind you about a calendar shift next quarter Thanksgiving falls in our fiscal second quarter. This year, whereas it wasn't the fiscal third quarter pre COVID-19.
This will be a net negative to the second quarter from a sales perspective.
Now we will take your questions.
As a reminder, please press star one to ask a question.
In order to allow all participants the opportunity to ask a question. We ask that you limit yourself to one question with one follow up thank you.
And our first question today comes from John Glass of Morgan Stanley.
Thanks, Good morning.
Robert.
Robert could you. Please first just talk about the impact of the reduction of couponing. It at Olive Garden I think that probably is adversely impacted sales. It obviously is a huge positive impact on margin, but can you just sort of quantify what you think the foregone sales were for that so as we think about that band versus peers, we have the right context.
Yes, let me let me take let me take a stab at this a little broader John and just just the coupon because I'm not sure. We can get right to the number that you're looking for them and I think the coupon number of probably was about 1% of sales.
And so I'm trying.
Sure, Okay, well, what's that what's that driving guest count and I think that's a little bit harder to get at.
When I look at that line the P&L, it's about was about 1%.
Put olive garden's performance in context for everybody obviously.
Thrilled with their performance.
We only have two 5% check in the business over the last two years, that's compared to a little over five for the industry. I mean, that's a strategic choice that we continue to make and we think it's the right choice.
If you just assume that the marketing was breakeven.
You've got to add another 10 points of the sales and.
And so basically they're they're flat flattish and you take out that marketing.
And that's a big number.
The other thing and then Rick alluded to this in his script I mean, we're still struggling from a from a staffing standpoint.
Primarily because of the exclusions.
And if you think about that that's limiting ourselves and it's just in the way I think about it is just another way of capacity limitation.
If you just think about it.
On average I guess, we have one or two sections closed in most of our restaurants most nights.
So we'll lose <unk> 60 tables, so theres, especially in olive garden. That's that's that's putting a cap on what we can do for sales.
So when I think about the overall sum up olive garden's performance. So I, just think that where we.
We're doing unbelievable, we've got 23, 2% restaurant level earnings percentage, our profit grew $25 million over pre COVID-19.
This is just that this is an impressive business and we're just we're reevaluating over time, how we're going to take this business to market.
When we think about couponing, and we think about overall promotional activity and full marketing.
Thank you for that and if I could just ask one follow up Raj on your commodity comments. It sounds like you would still expect maybe better commodity inflation later in the year do you have better visibility than you did before.
Would prevent you from having to go to the spot market more often its sales continued to go how much visibility do you have on that inflation for the full year now versus last quarter.
Sure, let me start by saying we have.
You saw we increased our forecast for sales so that gives us a little bit.
I guess.
Less need to have to go back into the market than what were already anticipating so some of that increased sales impact is baked into our estimate as we look at Q2 and Q3, we have we have more visibility clearly into a lot more into Q2 and some decent visibility into Q3 Q4 is one that is probably we will have to figure out where things.
Shake out, but we do we did have higher inflation last year in Q4, but all in all the way we're thinking about it is Q1, we had about five and half we have about 80% contacted for Q2.
Based on the updated volume and then for Q3 I think we have around 60% contracted out so we feel pretty good about that.
Could there be some movement, absolutely, but I think thats, where we showed you I think in the first quarter, how we have the ability to manage through that I mean, I think the fact I mentioned about the business model improvements as well as other levers we have at our disposal.
At our disposal to help us manage through that.
Fairly well.
And our next question comes from Andrew Charles of Cowen.
Great Rick I appreciate the commentary around the labor and staffing challenges what have you seen over the last two weeks since that $300 a week supplemental unemployment insurance expired is its been as large of a tailwind as you previously anticipated and perhaps you can speak to what youre seeing in states that curtail benefits early this summer is a leading indicator and then I have a follow up thanks.
Yeah, Andrew Thanks for the question.
I would say is we've done a lot of things to help increase staff.
The applicant flow and one of those that I talked about was the new system. We put in place we haven't really seen a dramatic change in staffing flow from when we put that new system in place to win the unemployment benefits started to eliminate so we think we've been getting staffing flow even before that happened.
We have as we said staffing challenges and the challenges are a little bit more in certain parts of the country.
But not necessarily daily driven by unemployment benefits is just driven by when they've opened up versus not when they've opened up.
We are we're not so worried about getting great applicants because we are getting them right now.
And then my follow up question is that you've called out prior to the pandemic that olive garden can reach 20% of sales off premise and obviously with the rebound in the diamond business Youre seeing that off premise mix come down a bit.
Still sticky.
Now accounting for about 27% of the brand sales do you think this is a fair mix of sales that you can sustainably see going forward or is it likely to further come down.
Staffing challenges ultimately easily you can fulfill more on premise dining.
Yeah, Andrew I still think that the.
Our premise mix will come down at olive garden and at Longhorn.
As the dining rooms continue to fill and people feel more comfortable going out to eat in a restaurant.
We're starting to see that some win when Covid was winding down.
For the Delta virus variants spiked we were starting to see our percent of sales go down.
And then when the Delta virus variance by it came it came on came back.
We started to see that percent go back up.
So we don't believe that 27% is where it will be.
In the immediate long term after after Covid is over.
We still think somewhere in the twenties.
But that all depends I mean, we've made a lot of great investments in our technology, we've made it easier for our team members to to handle all of the all of the orders we've made it easier for our guests to order to pay to do the things that I mentioned in the earnings in the call.
And so we do believe that our to go as a percent of sales is going to be greater than it was.
Than we ever thought it would be before COVID-19, that's because we're getting a lot of people that have come to olive garden into longhorn that hadn't done that hadn't done to go before so and theyre getting great experience.
Very helpful. Thank you.
If you find that your question has been answered you may remove yourself from the queue by pressing star two.
The next question today comes from Jared Garber of Goldman Sachs.
Thanks for taking the question obviously, the longhorn trends remain very robust and I think it was really encouraging to see the fine dining segment turned positive this quarter.
Can you talk about what youre seeing in terms of pent up demand and consumer trade up it seems like the steak category remains really strong maybe even relative to some of the other brands and I Wonder if.
Some of that trade up is sort of not benefiting olive garden as much. Despite some of the reduced promo activities in that brand.
Yes, I think that might be over thinking of just a little bit I mean, the steakhouse category has been.
<unk>, even be pre COVID-19 strengthened through COVID-19.
I think that longhorn is as we've discussed has benefited somewhat from.
Geographical footprint there has been when you think their footprint heavy heavy Georgia heavy Florida.
Also think that we've made a lot of investments in longhorn over the last five or six years and I think theyre really.
They've come through I would also say that operating these the smaller footprints.
<unk> has been easier through a little bit easier through Cobra, we need a lot less employees to run our longhorn I think.
We're.
Basically fully staffed in that business.
And so I think it's all come together and running real well as far as fine dining goes.
We're thrilled to see the level of the sales volumes, we did this summer in fine dining.
We will tell you that there's still a heavy drag on fine dining in the major cities were still down 40%.
And our three Manhattan locations, a little bit less than that and the other major cities, but we're seeing a.
A big uptick in suburbia, and fine dining, which has been fantastic and so that business has been robust I never thought in my wildest dreams I would see the kind of absolute numbers that we saw this summer in fine dining which has been fantastic. So I think theres some celebratory out there I think that.
I think people, who arent traveling for business as much as they used to or are using fine dining restaurants, maybe a little bit more on the weekend.
Which has been great to see and I think the only other thing that I would say on fine dining is Sundays become a legitimate sales day in fine dining, which was really pre COVID-19 kind of a throwaway day and most unless you are in a convention city in the convention started on Sunday.
But Sunday is a real legitimate day now which is taking operationally has taken some adjustments for us to get used to.
Thanks, I appreciate the color there and I just wanted to follow up on the on the unit growth commentary that you made earlier, Jay and I think it was really encouraging to hear that youll likely be ahead of that at the top end or ahead of that 2% to 3% range in 'twenty. Three can you talk a little bit about the.
The adjustments or the impacts you've seen in the other segment and maybe some of the opportunities coming out of the pandemic in that segment for the restaurants within there.
Yes, I think the biggest the biggest impact has been when we transform those business models and we've talked about the transformation. We've made at Cheddars also Bahama Breeze had a significant transformation there.
We're doing some good work in yard house, we're making some more investments in the food.
We've got that business model in a good place. So we think there's good outsized hopefully good growth in that business. So we have a lot more confidence in investing new capital into the into these segments and we've also I mean seasons is another business. That's that's really made significant improvement.
So we're confident to reinvest in that business. So is the real estate becomes available.
More options, we're confident and more options to use.
Real estate. So if we go into a market, where we already have a great olive garden a great longhorn.
We have we are we have we.
We have a property or a brand that we can put on top of that great piece of real estate and confident that we're going to get a really good return from that and so it's given our it's given our real estate and development team a little bit more flexibility now that we have to have this confidence in these businesses that we can grow them.
Thanks, so much for the color I appreciate it.
The next question comes from Jake Bartlett of Truest Securities.
Great. Thanks for taking the question.
My question is on the limited menu.
And olive garden and I was just wondering whether there is any concern that that's impacting the recovery the pace of the recovery at Olive garden, whether that's impacting sales I know, it's been great for margins.
In the context of that question I think there's been commentary from some distributors that independents are we expanding their menus.
Yes.
Is there a concern that others can we expand the menu. So that you guys might be missing out on sales and then I have a follow up.
I think that.
I think that the limited menu is not impacting olive garden at all and I'll go back to the context I provided at the beginning if you just use the breakeven on the advertising.
We will be up double digits in this business.
And we don't do advertising to breakeven.
Again.
The recovery in Olive Garden, I think has been stronger than most and I define recovery based on how much profit we make.
And I keep looking at that profitability number and I'm really pleased so I don't think the limited menu is having any impact on our ability to drive top line in that business.
I'd go back to some of the things I outlined in the beginning as far as independence, adding menu items.
No.
More power to them if they think that's what's going to drive their business, let them make those decisions, where we're very comfortable where we are with our menus at this point in time.
Great I appreciate that and following up on that selling expenses, it's been about 1% of sales for the last three quarters now is that the right level. We should think about for the rest of the year and maybe maybe just share any any thoughts you have on a longer term significant change from historical so where should we be thinking.
More than near and the long term in terms of marketing as a percentage of sales.
Well I think for the short term I think I don't think Youll see us change our marketing strategies at all or even our I guess our tactics at all at this point in time I think longer term I think I'm going to go back to what I talked about last call was we're still waiting to determine what's where's the equilibrium in this business what is going to be on premise, what's going to be off premise what's the.
Imperative set look like this.
This additional kind of ramp up in Covid I think is stressing out more restaurants. So maybe there could be some more closures I don't know, we don't know and so were just searching for equilibrium once we get to that equilibrium.
We will develop a strategy and implement tactics that we think will best position our brands to be able to grow profitability into the future, but at this point for us to talk about that and kind of say, where we think that's going to end up.
That would be just a huge mistake because we just don't know what environment, we're going to be operating in.
Thank you very much I appreciate it.
Yeah.
Our next question comes from Jeffrey Bernstein of Barclays.
Great. Thank you very much.
Two questions one John I think you mentioned in your prepared remarks specific August that trend slowed versus June and July, but still up versus pre COVID-19.
I'm just wondering how much of that you may be attribute to the staffing shortage versus maybe the spike from a delta Varian perspective, just trying to gauge the impact from each.
Thank you said September was.
Up 7% per operating week versus the first quarter up only $4 eight so I'm just wondering what your assumption is for the rest of fiscal <unk> relative to that September comment and then one follow up.
Good try Jeff I'm, not going to comment on forward looking on sales.
I will just say that I will say in our commentary about the trends is that as COVID-19 started to pick up, especially in the southeast and Florida was hard hit where we have a huge footprint.
You've got you had the impact of the Delta variant and you also had back to school and a lot of these territories at that time. So we're having a hard time teasing out what was seasonality what was the impact of the of the variant.
And that's one of the reasons why we gave you know we're not going to get in the habit of given quarter to date sales at this call, but we felt that there was enough change.
And the sales environment that we wanted to be explicit in our sales have come back a little bit in September after fallen and fallen a little bit in August.
We think some of that has to do with Covid. Some of that has to do maybe theres a little bit less seasonality in the business.
There's so many different variables impacting us.
Week month to month, right now and it's very difficult to tease out and so we're just being as transparent as we possibly can.
You know where were at quarter to date.
I'm not going to comment on what we've given you guidance for the rest of the year and Thats, what Thats, what we think we're going to be able to do.
Understood.
Just a follow up.
More broadly.
<unk> I'm.
I'm just wondering how you think about the restaurant industry and maybe even retail more broadly it seems like inflation is elevated.
All industries seem to be raising prices and not getting much pushback from the consumer I'm just wondering.
Maybe.
In your view how does this this and weather for the industry or just for Darden. When you think of that inflation versus pricing in the context of trying to drive traffic. Thank you.
Hey, Joe It's a very good question right. So I think first of all I think we can all agree that.
Lower income consumer is going to be disproportionately impacted by increases in inflation.
And that consumers are big part of our guests makeup for our casual brands. So we're incredibly focused on on the longer term pushback not so much short term when people say well, we're pushing this often the guests no one's pushing back eventually there's going to be pushed back and so we're making a strategic choice, especially in olive.
Garden, and I will say for Cheddars is that we're being very cautious with pricing and we want to make sure. This this peer group of consumers that we service feel as though they can still come to our restaurants and get an extremely.
Great value for what they have to pay.
And so I think that those who managed through this prudently.
Those who.
It's really take a longer look we'll get through this okay, I think those who pass through a lot of price.
That arent really managing their costs effectively I think we've got to really think about how we manage our costs going forward.
Because at some point.
Our average consumer could get priced out of casual dining if it costs too much and I think myself and Mike and the entire team is really really concerned about that and that's why we've made the strategic choice that we've made with pricing.
And so I think we're thinking about how do we position ourselves to excel in an inflationary environment.
Our next question comes from David Tarantino of Baird.
Hi, Good morning gene.
A question on Olive garden and the performance there.
Appreciate all the factors that you mentioned.
That may have weighed on the sales.
For that brand, but I was just curious to get your thoughts on <unk>.
Whether you think that was particularly acute in the quarter you just reported and some of those factors could is.
As the year goes on or how are you thinking about that are you are you assuming those factors continue for the rest of the year.
Yes, I think the one piece of one thing I would add that I did not mentioned in the comparable for the first quarter was two years ago, we were gone and buy one take one.
Which is a significant traffic driving promotion.
And we believe it does have some profitability.
Tied to it so that that was weighing on on a comparable performance in Q1.
David I really don't know I mean, I think that we're looking at olive garden more on a.
On a bottom line perspective than just the topline at this point in time. It makes it makes no sense at all.
Any business today.
To advertise and driving sales into restaurants that arent you arent assured you're 100% fully staffed and can provide a great dining experience and until we get to that and we feel certain that we have that every single day without having to deal with exclusions.
We're not going to get out there and try to try to push people into these restaurants and just makes no sense to me and so when I look at what we're doing in olive garden.
And I continue to just.
Be thrilled and they continue to exceed my expectations.
And it seems as though we continue to disappoint the sell side expectations on this but this is this is this is a very very difficult operating environment.
Uh huh.
I think that some of those things if COVID-19.
Tell me whats going to happen with Covid.
Moving forward then what I can tell you that some of this stuff will ease, but when COVID-19 store prevalent in our in our communities.
We're going to we're not going to know what the full potential of what I referred to as equilibrium is for a while.
Yep.
On the staffing levels I, just wanted to clarify I think.
You might have said that you are running at about 90% of pre COVID-19 levels, if I heard that right.
What is the targeted level.
How does that compare to what you would ideally like to date, because I think you had some efficiency gains but rates.
Lately, I guess lower levels than we had pre COVID-19.
Optimally, but I guess, where are you relative to optimal level.
Yeah, David This is Rick.
Yes, I did say, 90% of pre Covid staffing levels.
Assuming the volume that we have today right. So volume will drive how much staffing you need so think about that we probably need somewhere in the single digit number of team members in our restaurants, we have some restaurants that debt that need a little bit more because of the location, they're in but as I said most of our restaurants are fairly well staffed.
So as the volume start to increase we continue to hire.
So it really depends on where the volumes end up but we don't believe that we would need the same number of people that we did before COVID-19 at the same volume levels with these new menus.
And the other thing that's happening now is we've got team members that are coming into the into the industry that may not be able to work. The same number of hours. So it really all depends on the hours that people can work in the days. They can work so staffing levels in a number of people versus where we were pre COVID-19 probably isn't the best.
Best indicator, but it is a pretty good one.
And again as I said, we've been very we've been increased our productivity. So.
All equal same number of hours for a person same number of guest count for someone we would need fewer people.
Great. Thank you very much.
Our next question today comes from Brett Levy of MKS partners.
Great. Thanks for taking my questions.
I guess, if we can just go.
So big picture and then more specific to you guys.
If you could just parse out a little bit more on the competitive landscape, maybe a little bit more on the reach analogy and what youre seeing out there as well as if you're willing to share the market share data.
How much share you gain in the quarter and then also specifically for you you had great successes on the margins.
Sure you're planning, but just also to your execution.
Where do you see.
Margins really hitting a ceiling and I guess, we can either do that.
Darden consolidated or at Longhorn and Olive garden, specifically, thanks, guys.
Yeah. Good morning, Brett I think you know let me just comment on maybe some regionalisation.
More so than get into the competitive situation and I think that we have.
Been very pleased with how California's come back.
I spent I spent some time in California. This quarter. It was a lot different than what I thought it was going to be.
So I think that our sales have come back there since the middle of July very strong. So we're very pleased what's happening out there. We felt some we have felt some pressure in Georgia and Florida over the last six to eight weeks with the Delta variant, Texas didn't have much impact on Texas seems to have a mind of its own.
The northeast has never really come back.
From from where it was it's still performing okay, but hasn't hasn't really rebounded.
And then we've got pockets today, where.
You can just look at the heat map for Covid, you know that youre going to have some some sales problems. So you got some Tennessee, Kentucky West Virginia issues today.
But overall I would say, there's not a tremendous amount of difference in region Audi.
As far as margins go the way I would think about that is we're eventually get back to our framework, where we think we can get to 10% to 30. Once we once we figure out where equilibrium is.
And.
I don't think any of us should sit here today, and say whats the ceiling or where these businesses run long term.
We do think that we've made.
Some really great strategic choices over the last couple of years, we've transformed our business models. We've learned a lot we've learned a real lot through this on how to be more efficient and I don't think youll see us give give that up and as long as we can continue to drive the top line. There is no reason why we can hang onto these margins.
Thank you.
Our next question comes from Eric Gonzales of Keybanc capital markets.
Hey, Thanks for the question I just want to go back to the comment about the quarter to date trends and I don't want to beat a dead horse here, but I'm. Just wondering if you can maybe talk about the different performance of the different brands did you see acceleration across broadly across all your major brands or was it just.
Maybe specific to one or two of them and then.
My real question here is on the off premise business.
And I know you don't want to overwhelm staff by drawing in traffic with advertising I was wondering if maybe there is an opportunity to push harder on that off premise strategy marketing promotions, given that channel likely require less labor.
Sure.
Yes, no comments on quarter to date, we gave you a number which I don't like to do and that's I'm not going to talk about it anymore as.
As far as off trend goes.
And trying to drive that it's very very difficult to drive that business, specifically without discounting and we don't want to discount and.
Part of the labor problems and dealing with the exceptions impacts off premise too it takes less labor, but you still need you still need you still need to Cook you still need all these people to produce the food and so you know we're.
Ryan too when we think about this we're trying to create great dressed experiences whether it's on prem off Prem and as Rick outlined in his prepared remarks dealing with these exclusions I mean, it's not like we get a lot of notice that we got seven people that are excluded from the from the restaurant and all of a sudden you're seven people short for the night.
You've got you've got to you've got to adapt and try to overcome those challenges and so.
That were we.
Where we're at right now we are doing some things off premise without discounting.
And on the weekends.
Have to throttle the off premise business in other words, we can't we've got a control how many orders we do.
Every 15 minutes and each brand has a different different way of throttling each restaurant can throttle differently, but on average I will give you an idea is that we only take for all for US to go every 15 minutes and there are a lot more orders than that.
And so.
I think that that's you know.
That's something that we know we have excess demand, but we've got to be able to we've got to be able to service the dining room and service the off Prem.
From a margin perspective, the exclusion pay are you able to maybe talk about what that might be just from a from.
From expense perspective, recognizing that the sales have an impact, but maybe there is an expense that contain labor.
Not present.
It's not it's not big enough, it's not it's not meaningful impact on the P&L.
Thanks.
Okay.
Our next question comes from Brian Bittner of Oppenheimer and company.
Thanks, Good morning, guys.
Just going back to the staffing issues, you talked about at olive garden that clear.
Clearly our restricting sales capacity when you look at longhorn are they dealing with the same or similar issues from a staffing perspective, obviously it doesn't look like it when you look through the lens of just looking at numbers. So if they are dealing with those staffing issues can you just talk about why and the primary difference going on there.
Between the two brands.
Hey, Brian It's Rick a couple of things about longhorn one is they have a smaller total team than olive garden does right. So.
And they actually were in part to the country early in the pandemic that opened up a lot faster so their staffing challenges aren't nearly.
Where olive garden would be.
And actually right now they have more team members than they did pre COVID-19, but theyre doing a lot more volume. So their staffing challenges are really the same thing on exclusions.
If you think about the exclusions.
Lot of it impacts the kitchen, and so as long as they've got enough people working in the kitchen that they have an exclusion. They can continue to drive sales through that.
Not as big an issue for them. So you think about our longhorn probably 60% of the total team members of our restaurant than an olive garden does and so when you have exclusions, it's not that it's not as big of an impact for longhorn.
Okay, great. Thanks, Rick and just with Olive garden aside from the staffing issues.
How do you want us thinking about your ability to proactively drive the business in the future with more marketing or more promos, meaning.
Are you just so pleased with this new profitability profile of Olive garden that.
You really want this to kind of be the new base case strategy moving forward and how the brand operates or do you want us analysts thinking that you have this unused weapons that you could potentially deploy if you want.
No I think this is Brian. This is the way to think about this is the base business and what we're going to try to do is once we figure out where equilibrium is.
We will we will develop a strategy and implement tactics to be able to drive the business profitably.
What we wouldn't want to do is put back in.
Another $100 million of marketing and only get $400 million in sales.
And then you go back to some of the comments I made earlier is that we.
And we want to make sure that we're focused on value.
We think that.
This inflation going through there is going to be a longer term. It is going to be the winners are there going to be the ones, who provide exceptional value to the consumer.
And we were trying to position olive garden to beat to be that brand, it's historically done well in downturns.
We have a downturn, we want to position it to do really well.
I think we will promote again don't get me wrong. We will promote again, we just think we will do it differently and we are thinking we think a lot more about the opportunity cost around the value of that table.
One we're extremely busy and how not to have.
<unk> sitting at that table.
Paying less than full price, even though it's a value proposition, we don't we want to be value and focus on value. We don't want to be discounting off of value platform and I think that's really important and so we've got to figure that out once we get there. We know we've got contingency plans right now and we think we know what we wanted to do but we need to see what the compare.
The environment is and we need to see what the economic backdrop is.
Great. Thank you Jean.
Our next question comes from Lauren Silberman of Credit Suisse.
Yeah.
Thank you so just looking at trends across the brands on a two year basis comp accelerated from the fourth quarter and may all of the segments.
Olive garden and I appreciate all the commentary on the differences.
Absolute basis.
Rental perspective.
<unk>.
I'm just trying to understand why.
There is no change there.
Hi, Lauren.
Yes.
Let's make sure we understand the cautionary can you repeat the question.
Alright, so just looking at a two year basis comp for the quarter accelerated from the fourth quarter for longhorn fine dining and the other business reasonably flat for Olive garden.
So I understand all the commentary on an absolute basis onto your comps across the brands.
From a cyclical perspective in the fourth quarter to the first quarter.
There is anything to call out regarding factor than the acceleration.
For the other brands versus recently.
Yeah.
Yes, I'll just make a couple a couple of quick things I mean, when you think about like the other business. We got we got most of the yard house back.
In the quarter.
In fine dining we got we got a lot more full capacity back in the second quarter.
Longhorn.
A longhorn is just the Steakhouse segment has just done extremely well.
So I think that's really the big change and I think the other thing is really the starting point is not apples to apples. That's why we keep trying to come back to is olive garden had a lot of wood.
Talked about the promotion in Q1, we had a lot of market. The best one of their best promotions and we had put a lot of marketing dollars in there. So when youre right when you're trying to compare to the two year number youre starting point is off that's where we would argue that's 10 points lower RMR. So if you start with that olive garden accelerated.
That's where there's some volatility when you look at that by Brian because of the promotional differences.
Okay. That's very helpful. And then just on loyalty you've previously previously tested the loyalty program.
Select restaurants.
<unk> seen a lot of bran implemented man, we're looking to end the call.
Do you have any updated thoughts on the potential for a loyalty program across the system or what you saw in the past as you think about it.
Hey, Lauren it's Rick Yes, we eliminated we stopped the test of loyalty right. When Covid started we didn't believe it was the right thing to do during the time that we were making sure that we can get our restaurants open and up and running.
We are working right now on everyday value.
As we've talked about for Olive garden, we want to make sure that our value perception.
To improve its already great.
And all of our brands and so right now we haven't decided to even test again that may come down may happen someday.
But what we don't want to do is provide a loyalty program that provides a discount to the highest value.
The highest use consumer so if we have a loyalty program will work on something thats different.
Now I will say, we were seeing positive trends in our loyalty program before but that was a that was a points based discounted program that.
Long run we don't think is the right way to do loyalty in the restaurant business.
It's kind of we can move on to Dennis Geiger of UBS.
Great. Thank you first Raj just wanted to see if you could quantify the impact of the Thanksgiving shift on a quarter by chance.
Yeah, I'd say at a high level, it's probably think of it as about a 1% impact on a two year because we're comparing to pre COVID-19. It says you look at it yes, I think of it as about a point impact.
Yes, thank you very much.
Great and then just wanted to come back on the on the technology front.
Digital results as it relates to the digital mix of off premise. So just wanted to get a sense for any additional opportunities that you can share that can support either that off premise business or even the dine in business as it relates to the top line or even some additional margin efficiency opportunities.
I think geo fencing is kind of an interesting one that you've highlighted so curious if there's anything to share there and how close that might be or any other opportunities on the tech side. Thank you.
Hey, Dennis this is Rick just.
Just a broad message on technology first as our goal is to implement technology really that reduces friction across every part of the value chain.
And while we respond to growing desire for choice and personalization from our guests.
They want choice they want to be personal they want personal experiences.
And so one of a few of the things that we did in the first quarter just to give you an idea we added Apple pay and Google pay to Olive Garden Dot Com, we were already able to use Paypal.
To pay for you to go order and now over 25% of our mobile App transactions are paid.
Pal and these other wallets, where it's much more convenient for our guests to pay.
We've updated the curbside I'm here experience for our guests when they when they have to go still not including Geo fencing, but it's coming as well.
And we've just started at a b testing for Olive garden online online recommendations.
For items I'm, not going to talk about what we're doing in future quarters, but we have more improvements we continue to invest in this digital platform. Our goal for guest facing us to lead our segment when it comes to relevance and convenience for our guests.
And we will continue to do that will we lead the restaurant industry no.
Quick service players are going to probably spend more and do more things in technology, but we're going to learn what they are doing and see what we can bring to our to our space, but we're going to lead the full service restaurant space and technology for guest facing.
Great. Thank you.
Yeah.
We can go to Nicole Miller of Piper Sandler.
Thank you good morning, two quick ones.
Yes.
Can you talk about.
Catering as an underlying trends and what you're seeing and hearing.
Yeah Nicole.
Haven't seen a whole lot of pick up back in catering yet we did see during COVID-19 more catering to homes than to businesses, but since business spending and people still haven't gone back to offices, we haven't seen a huge pickup but we are seeing some we are seeing some growth in catering, but it hasnt been dramatic.
We will see what happens during the holiday season this year.
But right now not a huge huge jump in catering from what happened.
Covid is going on.
And then just a really high level question around fine dining your numbers are up like the industry peers, if not better.
What is a fair assessment of some of the pluses and minuses of what we might think about first half show a corporate gatherings coming up for the holiday season.
Yes, I think I think it's all going to depend on where we are with this variant.
What the levels are.
<unk>.
And.
Especially in some of the bigger markets.
I would sit here today and say.
I think it's going to be a robust holiday season.
We have robust holiday season for all our restaurants in all of retail.
I think that the consumers still fairly healthy from a financial standpoint.
And we'll know more in the next six to eight weeks as we start thinking about we start seeing the bookings.
One trend that we have seen over the last six to eight weeks is we've seen a lot of cancellations of larger parties or gatherings inside the fine dining restaurants as people aren't as comfortable gathering in big groups as they they may have been.
And the mid mid summer, but.
But I would expect this to be a robust holiday season, if the variant is under control.
Thank you.
We can now move on to Jeff Farmer of Gordon Haskett.
Hi, Good morning. Thanks, guys just quickly wanted to follow up on some of the menu pricing and value questions that you guys received.
I think you pointed to holding menu pricing, obviously, well below inflation levels, but that has moved higher for yourself.
I think menu pricing set at roughly one 5% in the last quarter.
Where do you think menu pricing can go this quarter and over the balance of the year considering that that inflation total inflation number has ticked up for you.
Yes, hi, Jeff ill speak to the year and what's contemplated in our in our guidance is pricing just under 2%. So if you think think about our total inflation being 4%.
In this in the in the forecast we provided our outlook, we provided what assuming pricing just under 2%.
Okay.
That's helpful and then different topic.
A lot of your peers casual dining peers have been pretty aggressive in taking these delivery menu pricing premiums, which improves the margin structure of profile.
For that delivery offering.
<unk>.
I'm just curious has that changed your opinion about potentially.
Pursuing delivery considering that there is a little bit better margin profile out there for that that sales channel.
No.
Alright.
Alright, Thank you guys.
Our next question comes from Brian Mullan of Deutsche Bank.
Hey, Thank you just a question on the long term development opportunity for Olive Garden, you made commentary in recent quarters.
Less worried about cannibalization you might have been in the past more optimistic on the number of units. So this question is whats your current thinking on the long term potential here.
Actual number you have in mind could there be a thousand restaurants could there be more just any color on your updated thinking.
Yes, I don't think we want to put a number I will say more more than 1000, we think that there's a pathway to get there I think it's dangerous to say I've been in this business and doing this for a long time and every time, we run our brands we put out numbers.
That we think are potential of the brand is really strong.
We kind of get through those numbers pretty easily.
So.
Let's just say, we one of our underlying beliefs is that convenience is going to continue to matter, we're going to need to build restaurants closer to where people live and we also believe especially in olive garden that we can build in more remote areas that have these large what I would call. These like 60 mile trade areas, where people travel in and out.
To get get some get things and dine and so we're pretty excited about where we can take olive garden, especially if we can maintain over 20% off premise.
That opens up some some more trade areas.
We just continue to open olive garden's and amazed we continue to be amazed at the volumes, we do and the returns that we're getting so.
We definitely think we can get over 1000 fairly easily.
That's it for me thanks for that.
Our next question comes from Chris <unk> of Stifel.
Thanks, Good morning, guys I wanted to get your perspective on what you think is driving the industry labor shortage in and how the industry can create maybe a stronger employee proposition to attract talent.
Yes, I don't first of all I don't think the labor shortage.
Just just the restaurant industry I think it's a national problem I think that we see it with our vendors we see it in other places we all have associated with maybe with some other companies that we see this challenge every single day so.
I do think that.
As we think about the restaurant proposition.
I think we have to all understand what to restaurant team members want and then they want they want an opportunity to be able to work in an environment that is well run they want flexibility they want growth depending on what they are using the job for and a lot of restaurant jobs are pass through their kind of let's get from point a to <unk>.
And I think as we have to continue to find ways to improve that proposition.
I think that one of the things that I'm really most proud of is how many people to come into our into us as an hourly employee and they were able to get into management. We got in the last three or four months, but almost 500 team members. We've taken from our army ranks and move them into management ranks and I love.
I love that growth I love that opportunity and when I'm in the field I love to meet these people and they're just they're so excited about about their future and their potential.
So I think it's I think those who have resources and I think this is where scale is going to matter to those who have resources that can create employment proposition.
That is stronger than others will attract people and there is no doubt that.
Think that we're in a lot better shape than others in this.
With labor at this point in time.
I don't think Thats, something I think it's going to come down to be an individual situation, which company and more importantly, it gets down to the restaurant manager of the GM and inside each of that box can make trade environment, where people want to work and Thats, how we will attract people, where we have our best leadership.
We do not have people problems.
One thing you didn't mention was pay and I'm. Just curious if you think continuing increasing pay it kind of healthier rates are the rates that we've seen recently, if you think that will address the employment issue at all.
No I think that I think you've got to have competitive pay.
And I think that that's only one aspect of the employment proposition.
There has been pressure on wage now for a few years, even before Covid I think there'll be there'll be there'll be pressure on wage.
As we move forward.
But I don't think it all comes down to just just pay I mean, I think if you I don't think the problems for the industry go away.
Just just because we're going to we'd have to pay more.
Great. Thanks.
Our next question comes from David Palmer of effort core ISI.
Thanks, Good morning.
I think the restaurant expense line was down 110 basis points on a two year basis in the quarter with comps up 5% over that time could you talk about how the company is doing this and how much of that do you think it's sustainable productivity longer term in your view.
Hi, David This is Raj.
Hi, David Yes, so.
Restaurant expenses per operating week or on an absolute basis were slightly below I think we're about a point below where we were pre COVID-19.
We have.
We have found some efficiencies through through the pandemic on some contract services and some R&M I do think some of the costs will come back in a little bit, but it's still going to be.
A point of leverage I mean, the airline that we're going to continue to see some improvement versus pre COVID-19.
Is it going to stay at that 110, 120 range, probably not at all and again I'll say it depends on where the sales are but we are managing that that's one line, where we have been able to manage well and keep it.
Keep it fairly flat or actually slightly below where we were pre COVID-19.
Well.
Just a quick follow up on that part is what are some specific things that are going on there and then just a separate question on the marketing and promotion side I'm wondering how you're thinking about marketing promotion spending as you see some of these COVID-19 era forces easing a variety of them.
So more specifically do you anticipate marketing and promotion spending returning to fiscal 19 levels in fiscal 'twenty three.
Yeah.
So let me ask answer the last question first.
No we don't expect it to get back to that at this point.
But then on the on the on the restaurant expense line and like I said, it's really contact services. We continue to look at our vendors and continue to work with them on how does kind of optimized streamline holiday and that's part of that.
There was a little bit less R&M that that has been catching up and I think by Q1 were more closer to pre COVID-19 levels on that line.
But theres a little bit more on that line that I think will come back.
Beyond that there's really no specific one item here or there.
Theres music there is other stuff that we talk about it but these are it's in multiple places.
Thank you.
Our next question comes from Andy Barish of Jefferies.
Hey, good morning, guys.
Just a couple of.
And a short term questions rich.
I'm sure your thoughts on the September numbers that you've talked about can you just give us a sense of.
The noise in the quarter. So far I know there was a labor day shift I think with two years ago, obviously weather just trying to get a sense of what what you can tease out given all the other variables.
Yeah, Hi, Andy.
We actually don't have a labor day shift because our fiscal years.
Giving you fiscal comps in our our labor because of the 53 weeks that we had in fiscal 19, we actually have apples to apples for labor day.
Well, it's clearly some impact from hurricane Dorian that about two years ago that we had talked about that impacted the first few weeks a little bit.
High level, maybe a point or so at the time I can't recall exactly but that's what I'd say.
And then just finally on the on the margins sequentially. This is usually a quarter where you see.
A couple of hundred basis points.
<unk> decline and margins given the volumes are usually the lowest is that.
Is that somewhat.
Predictable. This year are just too tough to tell given everything going on out there.
Hi.
So.
Let me answer it without getting to the specifics on that Q2 is is one where we do think because of the low volumes at low margins to begin with you're probably going to have a little bit more improvement than a typical quarter, but but I would say, but I would say that Q2 is also one quarter, where we're probably going to have the highest.
Inflation as we look at where we are sitting right. So it's going to be higher than Q1 in terms of inflation.
Okay helpful. Thank you.
And our next question comes from John <unk> of JP Morgan Hi.
Hi, Thank you I wanted to get back to labor and staffing in particular I heard you were adding 1000 net new employees per week. I think you said, which is obviously is a great achievement can you talk about the quit rate at Darden, just overall turnover and just as you are kind of hiring 1000 people.
Net which obviously is much more than that growth, how you're feeling about some of the real time operating metrics that you know that you look at it in terms of where those are versus standard and assuming there might be a tick below how quickly you think you can ramp back up to where you'd like to be.
Yes, John this is Rick on the turnover front, we are actually starting to see our turnover.
Improved dramatically from where it was kind of during COVID-19 and even coming right out of Covid.
We're still well better than the casual dining industry and turnover and especially in the first 90 day turnover and that really is a testament to the training that we're doing to these new team members when they're when they are coming in.
Turnover is still higher than it was pre COVID-19, but it's getting much better and it's still it's still much better than the industry.
And on the operating side.
Say that again.
Sorry, and on the operating side I mean, considering you are hiring so many new employees and 1000 net is obviously much more than that gross.
We have what's that's translating in turn up in terms of some of your real time operating metrics relative to the past and if theres an opportunity to maybe improve on the margin given how news. Your overall staff is yes.
Yes, I would say is if you think about the percent of our team members that are in the first 90 days they are not as productive as the team members that are that are.
Have been with us for a year and we do have a higher percentage of team members that are with us for $90 for the first 90 days and then we were two years ago.
So there are some productivity improvements that we can do for those new team members.
And we are spending a little bit more in training than we did two years ago because of that.
So there might be some some some some chance to offset some of those things, but that will just be that will just come from inflation down the road.
But yeah operating we're operating well all of our operating metrics. If you think about our guest satisfaction metrics. They are still at the same levels. They were over the last three or four months, even with these new team members.
Thank you.
Our next question comes from Jon Tower of Wells Fargo.
Awesome, Thanks for taking the questions.
First and I apologize if I missed this one but Raj did you quantify the headwind that the exclusions had on <unk> sales during the quarter and then second.
Rick and gene.
Throughout this call you hit on the benefits of scale and how important that is to your overall business and frankly, how well your business has been doing despite the challenges that the industry has been facing I would assume that many of your smaller competitors in the category are feeling the pain more acutely than you are so I'm curious.
<unk> given the benefits of scale your company could break of the table has your appetite for adding brands to the portfolio grow at all over these past six months or so.
We did not quantify the.
Any impact on sales from the exclusions, that's something that we're not we're not we're not we can't do that we have methodologies to do that.
As far as M&A goes I mean.
At the same place we are a platform company.
Management and the board continue to evaluate options and when we when we find an option that we think that makes sense.
Maybe we will do some right now I would describe pivot to say that.
We're extremely as I talked about my prepared.
Prepared remarks were really focused on growing our existing brands, we love how healthy are our brands are.
Vibrant and how good strong and the business models are we think opening our own restaurants right now is the best way to create value for our shareholders.
Got it thank you.
Our next question comes from Brian Vaccaro of Raymond James.
Thanks, just two quick ones for me on the call.
To date can you confirm that average weekly sales volumes also improved sequentially. What was the percent increase more driven by lapping easier seasonal comparison September is usually lower back to school and then Raj what level of G&A is bedded in your fiscal 'twenty two guidance. Thank you.
Okay, Hi, Brian.
For the September quarter to date the numbers, we're referencing are pre COVID-19. So as you rightly pointed out there is a seasonality as you come into September September is I think generally the lowest seasonal month for us.
For us and the industry in the casual space, but that said on the on the G&A front.
Like I said, if you take out the $15 million.
The unique items that we had this quarter that would be a good run rate to use as you look forward.
Thank you.
Our next question comes from Andrew <unk>.
Charles <unk> of BMO.
Great Great. Thanks for taking my question I, just had two quick ones on unit growth in real estate.
It feels like.
To yourselves Theres, a number of brands that are talking about accelerating unit growth kind of coming out of the pandemic. So I'm just curious for your perspective on the real estate environment in terms of availability price are you seeing that kind of competition play out and then secondarily.
<unk> given several eloquent answer is about.
It makes so much sense to put up your own new units I am just curious why you think three ish percent is kind of the right level at this point. Thanks.
Yes.
Unit growth.
No.
It's acquiring sites is this as hard as it was pre COVID-19.
People are out there competing not just restaurants are not just just not restaurants competing for space I mean retailers use it the spaces that we use banks use the spaces that we use there are a lot of there's a lot of competition out there.
That's definitely.
Sure.
It's definitely.
Getting more expensive we are seeing construction cost start to moderate.
I will tell you that having being investment grade credit does help with landlords.
And how we how we behave through the crisis and how we paid our rent is not forgotten.
With these landlords. So I think that we have we have very exciting group of brands to put on pieces of property and people are excited as darden is the tenant.
As far as why is 3%, where we believe there.
Right number to be.
Comes down to people.
I think the most important decision we make when running these kinds of businesses, who is going to be the management team in that restaurant.
And we need to make sure we have people that can handle that handle that responsibility.
We know, especially in our smaller brands, it's really tough to really ramp up that growth because you ripped through your human resources quickly every time you open a restaurant you really have two new general managers, you've taken an existing general manager and managing partner from an existing business putting them in a new business and then you've got somebody new and the existing distance you have two businesses at risk.
And doing this for the amount of years that have done it.
<unk>.
For Darden, 3% growth rate is really maxing out our human resources and our ability to do this correctly and.
It takes a lot to open a restaurant it takes a real lot to open a restaurant and we need to do it right and if we don't open a restaurant right and get it right in that first six months they tend to be a problem for up to three years and that's why we're pretty conservative on how we think about this.
Great very helpful. Thank you very much.
We can go to Chris <unk> of RBC capital markets.
Hi, Good morning. Thanks for the question. So you offered some commentary around guest facing technology, but curious to hear your thoughts on investing in technology that helps on the labor side.
I believe you mentioned tech related to <unk>.
Aiding in restaurant operations, but maybe anything else that's related to hiring or related to scheduling.
Any additional detail on tech focused on labor and staffing would be helpful. Thanks.
Yes, Chris this is Rick.
We do in the restaurant facing things that arent guest facing.
Primary goal is to improve productivity and simplify processes.
We believe we have we have a world class scheduling system.
And that does a great job, taking the general managers' forecast and scheduling a great schedule.
What isn't world class and it is the user interface for the manager to make it easier for them.
So we continue to do things to make it easier for managers to do things faster. So they can get with guest and they can they can train their team members can be with guests more.
We have some things for our team members and what we've done with to go in the kitchen.
And we are looking at machine learning and AI to do better forecasting so theres a lot of things that we're working on.
Especially in the kitchen, making it easier to order and receive product doing.
New inventory in those kind of things on the on the service side.
We're testing a few things that may make it easier for them, but what we don't want to do is have technology override the experience for the guests. So.
We will continue to make these investments in our technology and our in our kitchen technology and our to go technology.
To help improve productivity.
Great. That's helpful. Thank you.
And then just quickly just following back up on the topic of reduced industry supply from competitor closures. Just curious if you have any observations you can share from markets and perhaps you saw more competitor closures versus markets, where there were less closures right. Just really just trying to get a sense of to.
To what extent there has been any or to what extent there has been a benefit from.
From <unk>.
Industry closures. Thanks.
I would say.
There's two ways to think about it number one.
Tier one trade areas youre not going to see a lot of closures right. So even in even in a below average restaurant can make it in the tier one environment unless the renters to owners, so youre seeing more of the.
The closures in your in your secondary and tertiary sites.
Especially on from independence in the casual space and some chain chain restaurants.
Now in some of the tier one sites you are seeing some independent closure on fine dining.
And I believe that those will be the first two.
To come back those are built out as restaurants don't get recapitalized very quickly with another chef and another owner. So I do think those will come back but.
I would summarize by saying you're not seeing it in your tier one youre seeing it more in your tertiary areas, where you're seeing a lot of closures.
Got it okay. Thanks for all the detail today.
That concludes today's question and answer session. Mr. <unk> at this time I will turn the conference back to you for any additional or closing remarks.
Thanks, Kevin that concludes our call I'd like to remind everyone that we plan to release second quarter results on Friday December 17th before the market opens with a conference call to follow thanks and have a great day.
Ladies and gentlemen that concludes today's conference call. We thank you for your participation you may now disconnect.
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