Q3 2022 Darden Restaurants Inc Earnings Call

Please standby we are about to begin.

Welcome to the Darden fiscal year, 2022 third quarter earnings call.

Lines have been placed on listen only until the question and answer session to ask a question you May press star one on your Touchtone phone.

The conference is being recorded if you have any objections. Please disconnect at this time.

I will now turn the call over to Mr. Kevin Kallikak. Thank you you may begin.

Thank you Jess and 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 C O L and Raj been CFO .

As a reminder comments made during this call will include forward looking statements as defined in the private Securities Litigation Reform Act of 1995 the.

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 a presentation. During this call which is posted in the Investor Relations section of our website at Darden dotcom.

Today's discussion and presentation includes certain non-GAAP measurements and reconciliations of these measurements are included in the presentation.

Any reference to pre Covid when discussing third quarter performance as a comparison to the third quarter of fiscal 'twenty 'twenty. This is because last years.

Results are not meaningful due to the pandemic impact on the business and the limited capacity environment that we operated in during the third quarter of fiscal 2021 .

We plan to release fiscal 2022 fourth quarter earnings on Thursday June 23rd before the market opens followed by a conference call.

This morning gene will share some brief remarks, Rick will give an update on our operating performance.

Raj will provide more detail on our financial results and an update to our fiscal 'twenty two.

Financial outlook, and then gene will have some closing comments now I will turn the call over to Jim.

Thank you Kevin and good morning, everyone. Our third quarter was one of Stark contrast, I'm pleased with our performance in this highly volatile environment. Our team did a great job controlling what they could control.

In fiscal December we achieved record sales while meeting our internal profit expectations that were contemplated in the guidance we provided in December .

However in fiscal January which is a high volume period for us the omicron variant significantly impacted consumer demand restaurant staffing and operating expenses. We also experienced substantial weather impacts all of which resulted in significantly lower sales and earnings than our internal expectations.

Patients.

Finally, as Covid cases declined and the operating environment normalized sales improved throughout fiscal February and we had strong results that exceeded our internal expectations.

Sales strength has continued into March quarter to date. Our average weekly sales are slightly ahead of our February actuals and these trends are incorporated in our guidance.

When we talked last in December we could not have predicted the impacts omicron would have on our business in fact, the dramatic spike in cases create the most difficult operating environment since the initial onset of Covid two years ago.

Rick will provide more details on the impact it had on our staffing levels in a moment.

<unk> also created additional pressure on expenses at the restaurant level as we saw higher levels of sick pay and we incurred significant overtime costs due to staffing shortages caused by exclusions.

The January Spike also caused further supply chain disruptions and we now expect inflation to be higher in Q4 than when we talked in December .

We have implemented pricing actions to mitigate the impacts of rising costs and Roger will provide more detail in his remarks.

We recognize that all of us and the industry face additional risk due to the current geopolitical environment, such as higher inflation and further supply chain disruptions. However.

However, I'm confident that darden can compete effectively in any operating environment, we have a strong balance sheet and the right strategy in place driven by our four competitive advantages of significant scale extensive data and insights rigorous strategic planning and our results oriented culture.

And our brands are relentlessly focused on executing our back to basics operating philosophy anchored in food service and atmosphere now.

Now I'll turn it over to Rick.

Thanks, Jim and good morning, everyone a.

Our restaurant teams are focused on executing at the highest level and creating exceptional experiences for every one of our guests.

That's why we are committed to doing what it takes to have the people we need in the products our guests expect when they choose to dine with us.

From a people perspective, we are seeing positive momentum in applicant numbers and we feel much better about where we are now in terms of overall staffing.

Our focus will continue to be on hiring and more importantly training our new team members to reach their productivity level required to enable us to operate at optimum staffing levels.

Our biggest staffing challenge during the quarter was managing the impacts of team member and manager exclusions due to omicron.

To provide some context at the peak team member Exclusions in January were three times higher than the monthly peak, we experienced with Delta.

While we did get some help as the CDC guidelines for exclusion were reduced from 10 to five days.

8% of our total workforce was excluded at some point during January .

To put a finer point on this in the month of January we had over 13000 team members excluded for a total of more than 65000 exclusion days.

I'm really proud of how our teams manage through the impacts of OMA crime has.

As it moved across the country, we had some restaurants that were down as much as 40% of their staff and others that needed to limit their hours or temporarily moved to take out only in order to operate effectively.

As omicron began to fade our teams kept the same level of focus on staffing and training to provide a great guest experience, which resulted in record sales for fiscal February .

Alan Times day was strong across all our brands and that is a testament to the excellent job. Our operators are doing to ensure their restaurants are staffed and ready to serve our guests.

In fact on Valentine's day, Olive garden's served more than 1 million guests with approximately 35% of sales off premise.

On the product side, our supply chain team is working hard leveraging our scale to ensure our restaurants have the products they need to serve our guests.

Our inventory levels remained strong and some of the logistical challenges we had been dealing with began to improve in December .

However, omicron impacted staffing for our supply chain partners in January as well.

For labor intensive crude production. This resulted in reduced supply and increased costs at a time when protein prices typically shift down from the heavy holiday buying season.

Our distribution partners also experienced warehouse staffing challenges and driver shortages.

Thus, we had expedited shipping costs and utilize more spot rate haulers in the quarter.

Between those impacts and dealing with back to back winter storms, our team did an admirable job of maintaining supply continuity for our restaurants.

Together all of these factors increased our expected annual inflation and Raj will provide more color on that in a moment.

To go sales remained strong during the quarter as our brands and our guests continue to benefit from the strength of our digital platform.

Off premise sales accounted for 30% of total sales at Olive garden, and 16% of total sales at Longhorn Steakhouse did.

Digital transactions accounted for 63% of all off premise sales during the quarter and 12% of Darden's total sales.

Before I turn it over to Raj I want to thank all of our team members, who have shown tremendous resiliency and dedication in the face of constant change.

Two years ago, we closed our dining rooms, and did not know when we would be able to reopen them.

Since then we have dealt with multiple COVID-19 waves and our teams continue to demonstrate incredible flexibility and perseverance, while creating exceptional guest experiences.

Today, we are hopeful that we are near the end of the COVID-19, as a pandemic and that we will be able to live with it like we do with other viruses.

As I visit our restaurants and talk with our team members. They say each day it feels a little more normal and they are invigorated by the energy that is returned to our dining rooms.

Our team members are the best in the business.

Inspired by their winning spirit and confident that Darden's best days are ahead of US now I'll turn it over to Raj.

Thank you Rick and good morning, everyone.

Before I get into our results for the quarter I want to expand on gene and Ricks comments regarding the impact of omicron and winter weather on our third quarter results.

When looking at the fiscal months actual sales for December and February were close to our internal expectations that were contemplated in the financial outlook. We provided in December .

And we met our profitability expectations in December and exceeded them in February .

In fiscal January however, we were significantly below our sales and profitability expectations as COVID-19 cases searched, causing increased staffing shortages and reduced demand.

We also experienced more severe winter weather than historical averages.

As a result sales were negatively impacted by a $100 million disc sales down a slowdown coupled with the additional expenses related to sick pay overtime and increased inflation negatively impacted EPS by approximately 30 cents and was more than 100 basis points drag on EBITDA margins for <unk>.

This quarter.

Now turning to the detailed results for the quarter total sales for third quarter, what coupon 4 billion, 41% higher than last year, driven by 38% same restaurant sales growth and the addition of 33 net new restaurants.

Diluted net earnings per share from continuing operations were $1.93.

Total EBITDA was $395 million, resulting in EBITDA margin of 16.1% 50 basis points better than pre COVID-19 .

We continued to return significant cash to shareholders paying $141 million in dividends and repurchasing $382 million in shares for a total of over $520 million of cash return to investors in the quarter.

We ended the quarter with $555 million of cash on the balance sheet.

We continue to see increasing cost pressures with inflation with total inflation of 7% this quarter, which was higher than our previous expectations.

As I mentioned last quarter, we began taking additional pricing in the third quarter and have also implemented additional actions to further preserve the strength of our business model, while balancing the impact to our guests.

While the third quarter total pricing was three 7%.

And for the fourth quarter, we expect our pricing to be approximately 6% compared to last year.

As a result, we now expect pricing to be just over 3% for the full fiscal year. This is well below our updated total inflation expectations of 6% for the year as we continue to execute our strategy of pricing below overall inflation the center of our value leadership position.

Turning to our P&L and segment performance for the third quarter, we are comparing against pre Covid results in the third quarter of 2020, which we believe are more comparable to normal business operations and with how we've been framing our margin expansion opportunity.

For the third quarter food and beverage expenses were 270 basis points higher driven by elevated commodity inflation as well as the investments in food quality portion size and pricing significantly below inflation.

Commodity inflation this quarter was 11%.

Restaurant Labor Labor It was 50 basis points higher driven by wage inflation higher sick pay and overtime expense as a result of pharma crop.

Hourly wage inflation during the quarter was just over 9%.

Restaurant labor as a percent of sales in fiscal December and February was better than pre COVID-19 . As these months did not experience the same scale of headwinds from omicron.

Restaurant expenses, what 80 basis points.

Lower as our teams continue to manage controllable expenses.

Marketing spend was $44 million lower resulting in 190 basis points of favorability.

As a result restaurant level EBITDA margin for Darden was 19.4% 50 basis points below pre COVID-19 levels for the quarter. However, both in December and February restaurant level EBITDA margins grew by almost 100 basis points compared to pre COVID-19 .

G&A expense was 90 basis points lower driven by savings from the corporate restructuring in fiscal 2020 , one a decrease in mark to market expense lower travel expenses and sales leverage.

Turning to our segment performance.

Sales and segment profit margin significantly increased work this last year for all of our segments.

As we compared to pre Covid all segments other than olive garden grew sales.

Olive garden sales were slightly lower due to a disproportionate impact olive garden experience from the significant increase in Covid cases.

This is because olive garden's geographic footprint.

Guests demographics make it more sensitive to Covid case Collins.

Additionally, olive garden continues to have significantly less marketing and promotional activity, which is a headwind to sales growth when compared comparing to pre COVID-19 .

The January impact from Omicron I discussed earlier resulted in all of our segments experiencing lower segment profit margin in the quarter relative to pre COVID-19 .

Finally, turning to our financial outlook for fiscal 2022, we updated our outlook for the full year to reflect our performance year to date and our expected performance for the fourth quarter.

We now expect total sales of 9.55 billion to $9 six $2 billion driven by same restaurant sales growth of 29% to 30% and approximately 35 new restaurants.

Capital spending of approximately $425 million.

Total inflation of approximately 6% with commodities inflation of approximately 9% and total restaurant labor inflation between 6% and six and half six 5%, which includes hourly wage inflation approaching 9%.

EBITDA of 1.53 billion to 1.55 billion.

And annual effective tax rate of approximately 13, 5%.

And approximately heartland and 29 million diluted average shares outstanding for the year.

All resulting in diluted net earnings per share between $7 30, and $7 45.

This outlook implies full year EBITDA margin growth versus pre COVID-19 of roughly 200 basis points still within our previous expected range.

This outlook also implies fourth quarter sales between 2.52 billion and $2.59 billion.

And EPS between $2.13 and $2.28.

Is higher than what was contemplated in the previous outlook we provided in December .

As gene said our quarter to date average weekly sales are slightly ahead of February and that is incorporated in this guidance.

Looking forward to fiscal 'twenty, two 'twenty three we're providing some preliminary guidance for a few items.

We expect to open approximately 60, new units and our fiscal 2023, we project total capital spending between 500 million in $550 million, we anticipate an effective tax rate of approximately 14% for fiscal 2023.

Now I'll turn it back to Jean.

Thanks Raj. This morning marks my 30, <unk> and final earnings call in my eight years, leading darden.

So all of the analysts who support us. Thank you for believing us our vision and our ability to execute and.

And for those of you who didn't always believe in us. Thank you as well you may you motivated me more than you will ever know.

I want to thank our shareholders for the trust they have shown us and by investing in Darden.

Miss our time together, whether it's the one on one meeting a group meeting or one of the many dinners we shared over the years.

And finally, thank you to all of team members in our restaurants and our support center, who are the lifeblood of our company I look forward to seeing you in our restaurants in my new role as chair.

I began this journey 45 years ago as a high school Kid Bussing tables.

I've learned a lot of lessons throughout my career, but two in particular have served as guiding principles for me.

First when it comes to making decisions you have to make sure both guests and team members when.

When those two critical stakeholders when it's a good decision.

Second this is a simple business Malcolm Knapp says it best the restaurant business is simple, but simple is hard.

To be successful in the restaurant industry, you must have great people, who consistently serve outstanding food and an engaging atmosphere.

So while I may have bored you with my back to basics operating philosophy running great restaurants will always require intense focus on the fundamentals.

As I transition into my new role as chair I'm confident Darden is set up for success, Rick is ready to lead the company and he and his team will do a great job now.

Now, we'll open it up for questions.

Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

Speaker phone. Please thank Jeremy function is turned off to like your signal to reach our equipment.

In the interest of time, we ask that you. Please limit yourself to one question and one follow up.

Again star one to ask a question.

We will take our first question from David Tarantino with Baird. Your line is open. Please go ahead.

Hi, good morning.

My question is about the margin outlook, given the inflation environment, you're facing and I think you had <unk>.

Previously guided to 200 to 250 basis points of margin expansion relative to pre COVID-19 levels.

It looks like Youre going to comment.

On that range for the fiscal year, but as you think about the forward looking.

Outlook.

This year or do you think that is still in play.

About the inflation as you move into fiscal 2023.

Or do you think that that needs to change.

Okay.

Yeah, Hi, David Good morning, This is Raj.

So let me just step back and talk about margin you know when when we began the year, obviously things have changed quite a bit from the environment today relative to how we started the year is very different you know we started the year with 3% inflation assumption and it and pricing closer to one 5% and here we are three quarters in we're looking at.

6% total inflation and our pricing has only gone up by about 1.5%. So we started with one and half an hour just over 3% for the full year and still are able to get to that 200 basis point. So we really feel good about where we are.

Getting to by the end of this year.

We will share more details on the June call in on in terms of how we're thinking about fiscal 'twenty three but I think I think in the current environment considering the situation. We're in we feel good about where we're where we expect to be for the for this fiscal year.

Got it and then just a follow up on that you are.

Like you're leaning it up a.

A bit more on pricing with the fourth quarter being up.

6% I guess, how did you arrive at that decision to take that much pricing and how do you feel about.

The consumers ability to absorb that level of pricing.

Yeah, I think if you actually look back to what we've done over the last few quarters and actually last couple of years, we've taken very little pricing. We've said all along that we wanted to preserve the flexibility. We wanted to you know we approach pricing very conservatively and and so we've been trying to hold off on pricing pricing as.

Much as the inflation would have dictated and I think where we are now is you know, 6%, while 6% seems high on a on a on a you know our intent in terms of how historically we priced it.

Considering the environment and considering what we're pricing over two years, we don't think we don't think it's too much.

Obviously, you know we're going to continue to look for opportunities to price below inflation and like I said earlier, this year, where pricing through higher below and and as as as inflation creeps up we're going to have to try to manage through that but it's going to be a combination of pricing and productivity initiatives.

Great. Thank you and Jean Congrats again on a great ride as C E O.

Thank you David.

We'll go next to Brian Bittner with Oppenheimer <unk> Company. Your line is open. Please go ahead.

Thank you good morning, and congratulations gene we.

We seem to be sitting here at a point in time when operators and investors are increasingly concerned about lapping stimulus and doing so at a time when gas prices are surging and this does not seem to be impacting your outlook based on your comments around March and based on the implied for Q revenue guidance, which implies very strong.

[noise] trend. So can you just comment on the environment out there and maybe why darden seems to.

Not be prone to it.

Brian I think this is gene I think one comment and then I'll, let Rick jump in here too, but one of the things that gives us confidence around pricing are increasing a pricing level to 6% is that a wage rates at the lower end or are increasing higher than that so we're.

Seeing almost double digit when you look at our our direct labor.

So we believe that wage inflation.

Throughout the country is rising at a pretty rapid rate and so we believe that the consumer can handle that right now based on where things are today right. The environment can shift pretty quickly honest here, but what we're seeing today is that consumer demand remains.

Fairly strong and as you know this is this environment seems to be very different than a lot of other environments. We operated in the past where.

We've got a lot of things impact a lot of headwinds impacting the consumer but wages are increasing rapidly and especially more so on the lower end.

Yeah, Brian and I'll I'll add to the current environment you know as you think about what's going on in Ukraine first of all I want to say, our thoughts and prayers are with the people of Ukraine.

But the fact is we don't know how long the conflict is going to last until we don't know how long that is going to do anything to the environment itself.

We're focused on controlling what we can control confident in our ability to manage our business effectively in any operating environment.

The other thing to think about is rare.

Our restaurant supply is down 13 ish percent, 14% from pre Covid.

And so that gives people that want to go out and people do want to go out fewer options and we are a great option for them. So and then the last thing I'll say is you'll notice that our guidance range is a little bit wider than it normally would be in a quarter.

At the end and that's just because of the uncertainty that we're feeling but we feel good about the guidance. We gave we just gave a little bit bigger range, just because of what we're what we're going through today.

Great. Thank you gene and Rick.

Okay.

Well go next to Brett Levy in N. K M Partners. Your line is open. Please go ahead.

Great. Thanks for taking the question.

Jim your comments will be.

Surely missed over the next.

Over the next few years as we come out of this.

It's more challenging times when.

When you think about your operating model and <unk>.

All of the infill.

Inflation labor shortages.

All of the rising pressures on the consumer.

How should we think about.

What you can implement in terms of technology.

Conservative do you want to be in terms of.

Newness to the menu over the next let's say.

Two to six quarters how.

How should we think about what you can really monitor on the controllable to drive productivity.

First is you need to stay front footed.

Okay.

Hey, Brett it's Rick a couple of things on that question. So on the technology front. You know we continue to have the same goal of implementing technology that reduces friction across the value chain wherever that friction is.

And responding guests growing needs for personalization.

We don't anticipate using technology to take people out of the system. Because this is a full service restaurant and full service company and we believe that consumers want human interaction.

In terms of menu, we've been clear that we really like.

The reduction in menu and what it's done to to provide our guests with the get dishes. They want.

At high value dishes that they want it makes it easier for our teams to produce them.

And we can continue to get better.

If we add new items, we take another item on them and so we're gonna be consistent on making sure our menu stay at the levels. They are today within a very small percentage up or down.

On the controllable as front, we still have some costs that will be coming in over time, but as we look to the future and project as we think about sales going forward, we would expect to get some productivity, but we don't think margins going to be moving very much from where it is today and.

We will talk about more about that in June as we think think about our our for our fiscal 2023.

But just if you think about our long term framework that we had we've had.

It was 10 to 30 basis points of margin improvement, we got seven years of margin improvement in two years.

And so we have to make sure that we manage that and consider that margin improvement we've made over the last couple of years.

Yeah.

And then just one quick follow up.

When you think about the mix of your consumers right now shifting either kit.

Higher higher value products for the pursuit of value have you seen any material movement.

In the mix.

I guess by Olive garden by long hard and then just across the consolidated.

No no, but we haven't seen any movement.

Thank you.

We'll move next to John Glass with Morgan Stanley . Your line is open. Please go ahead.

Hi, Thanks, good morning.

I don't think the board any of that I think actually you taught us all a lot about the industry. So thank you for that.

Rajan commodities, specifically I know you provided some insight on the deck here about through May do you have have you started to contract beyond that or do you think its too early given the volatility do you have any visibility I guess into 'twenty three on the at least that expense item.

John we are obviously starting to have conversations. We have are we we are I would say from a history compared to historical.

Situation, where probably less contracted.

And now we're working through those over the next few months and we'll have more to share in June .

But the power of premiums are too high to contract that far out.

Thank you for that and then just related to your comments about pricing in the consumer can tolerate that pricing. How are you thinking about your promotional tactics in 'twenty three do you start to come up with alternative plans that the consumer is weaker than you expected you are starting to revisit your thoughts about the marketing spend in the <unk>.

How are you preparing if in fact consumer demand starts to weaken or whatever what are some of the tactics. Just broadly that you think you can employ to continue the sales momentum.

Hey, John It's Rick Thanks for the question I will say, we're not going to talk too much about 'twenty three but I will say, we've got contingency plans for anything.

If the economy slows down we've got some plans we won't talk about what they are Ah if the economy stays strong then we'll continue what we're doing.

So until we see what that is and where it is we don't really want to comment on what we would do.

Okay. Thank you.

We'll go next to Brian Milan at Deutsche Bank. Your line is open. Please go ahead.

Hey, Thank you. Thanks for the development color on fiscal 'twenty. Three just wondering if you could speak to how that pipeline is building beyond that on a multiyear basis.

It would be great to hear your thoughts on what Youre seeing from a competition for sites perspective are you seeing other large chain casual diners that they will get the same sites.

Anything different or notable that's worth calling out versus versus how the environment was prior to COVID-19 when there were more restaurants.

Hey, Brian we're continuing to build our pipeline for fiscal 'twenty four and beyond.

And as we've said before we'd like to get closer to the higher end of our long term framework.

And in our in the future.

So as we're seeing competition for sites, we aren't seeing as many.

People competing precise, but they're still they're still brands that are out there growing and competing for sites and.

And so as we continue to build the pipeline.

We will continue to compete for some of those sites I will say add to that we are taking over some sites and building some restaurants.

And converting some to our brands at an economical rate and they're really great site. So this brands just didn't stay through.

So we will continue to build our pipeline, we still have some cost inflation in there, but our business model has improved so much that it did is offsetting that by more than more than enough and we feel good that we'll continue to build our pipeline.

Thank you.

We'll go next to Peter Stabler of <unk>. Your line is open. Please go ahead.

Great. Thanks, Thanks for taking the question and congrats again Jim.

Gene I think several quarters ago, you had mentioned that you.

You were saying about 10% fewer units in casual dining versus pre pandemic, but there was I think a lot of speculation still in and in the category and people opening up restaurants are you still seeing that is it still fairly competitive out there in terms of development or has the environment.

The inflationary environment kind of push that down a little bit and made that subside a little bit.

Yes, I think if you go back in and what I was trying to say back then was that there was a lot of speculation, especially by some of the big reach out there that we're willing to take on.

Some real estate and leave it we've been vacant for a while and the carry costs, where we're less we.

We haven't seen any real change in that my expectation would be as interest rates rise.

There'll be less speculation in the real estate market and people would be less likely to allow their buildings that sit dark for a period of time.

And so as Rick said before in the prior question we're building our pipeline.

There's competition out there.

A lot of chain restaurants out there competing theres a lot of smaller regional players out there competing for space at the end of the day.

Most landlord landlords want a darden guarantee signature on their property, we get to look at most of the real estate out there in the United States and in and we get you know we get first look at and if we can make it work we're going to we're going to we'll sign a lease and we'll try to put the right brand on there to maximize the opportunity.

Thank you for that and then just on the development for 23 can you give us a sense on how much of that development is coming from Cheddars.

Yeah, it's going to be somewhere in the low low single digits, maybe as much as 10, but lower single digits to as much as 10.

Yeah.

Great. Thank you very much.

We'll go next to Jeffrey Bernstein at Barclays. Your line is open. Please go ahead.

Great. Thank you.

Jean Thank you for your steady leadership and friendship over the years and for setting an example for the industry to follow.

Just a question on the off premise business. It seems like it's stickier than we would've thought I think you said, 30% Olive garden, 16% at Longhorn just wondering if you can maybe share the split between delivery and pickup within that current to go sales.

What do you think that's going to settle.

I mean, it just seems like a lot of this is here to stay and I'm. Just wondering whether there is any chance you guys would reconsider opening up to maybe third party delivery aggregators. It seems like the consumer expects it and a consistency has improved fees at east.

Don't want to see you guys lose out if this is kind of where the future is going so any thoughts on that would be great. Thank you.

Hey, Jeff This is gene I thought you'd wait till I leave the room basketball third party delivery.

I'll, let Rick take that.

Hey, Jeff Thanks for the question.

You know gene and I are in the same place on what in what we believe with third party delivery.

We still don't like that model, we don't think it's the right thing for having someone getting between us and our guests in a couple of points Olive garden has grown their to go business significantly.

And in many ways faster than others that have grown it with third party delivery without that margin hit.

Our now our takeout sales increased in Q3 from Q2.

Partly because of the influx of AUM a crime.

And so people shifted again back to it to go experience, we're seeing a little bit of a shift back.

Two on premise in in in Q4, we don't know where equilibrium is gonna be and when we get there it'll it'll probably be higher than where we were before COVID-19 , but it's not going to be at the levels. They are today.

And so we'll continue to make investments that we need to take the friction out of the order pickup and pay experience. So that people don't consider getting delivered.

Now you did ask about our delivery, we do have large party delivery for olive garden, and that's a good business for us. It's a minimum order size. It gives us enough time to to.

The order and deliver it to our guests and actually do a little bit more of a set up for it.

So we really feel good about that business, but you know, we never say never but the likelihood of us getting into third party delivery anytime soon is pretty low.

Okay.

Thank you.

Sure.

We'll go next to Dennis Geiger of UBS. Your line is open. Please go ahead.

Great. Thank you and Jean Congrats on a remarkable run.

Wanted to ask on the staffing situation a bit more sort of where are you now on staffing levels relative to where you'd like to be.

Kind of related to that as it relates to the wage inflation, recognizing theres a lot of moving pieces out there.

Has that stabilized in your mind or is it too soon to make that call.

Yeah, Dennis it's Rick Thanks for the question on the staffing side.

You know we feel as I said in the prepared remarks, we feel much better about where we are in our staffing today than we did three months ago three months before that we continue to add around 10000 people working for per quarter basically at the end of the quarter from the quarter before.

Our staffing levels are greater than 95% of pre COVID-19 staffing levels.

We don't need as many people as we did before because they were productivity enhancements.

That said, we want to make sure that our team members that we have are are fully trained and productive.

And as we said exclusions were were pretty tough in the month of January especially.

In terms of of wage inflation, we are as we said seeing a continued increase in applicant flow and so while it hasn't reversed kind of the starting wage trends.

It's actually starting to stabilize but we don't know where that's going to whether that's going to land, but right now it's starting to stabilize a little bit and we will know more as as that as it advocate below continues to pick up and people feel more comfortable.

Working again after as omicron, hopefully becomes more of an endemic bursts of pandemic.

Okay.

Great and just one more there Rick as it relates to the competitive environment in the industry you spoke to itself I think as it related to real estate.

Date up opportunities as it relates to market share, perhaps how are you thinking now about.

About the small chain independent situation has it gotten.

Better worse or as you kind of look ahead.

The opportunity for you to kind of pick up share because of closures permanent closures, maybe more challenges that are coming in given all the inflation has that have your thoughts there changed at all on <unk>.

What that means for darden's brands. Thank you.

Yeah, Dennis our thoughts haven't changed is as the the economic environment continued to struggle over time as omicron picked up more restaurants closed I mean, so there are fewer restaurants today than they were last month in the month before in the month before that.

We'll eventually get filled and art are what we want to do is be there to fill some of those restaurants and pick that pick that pick up that market share as we think about the future you. We've said that we're going to increase.

Hopefully get to the high end of our framework in new units.

But those those.

Those restaurants will eventually come back and be better than they were before our restaurants will be better than maybe the ones that were closed.

Thanks very much.

We'll go next to Chris that's cool at Stifel. Your line is open. Please go ahead.

Thanks, My question relates to just consumers value perception of Olive garden, Rick I'm curious if you've seen any change in the value perception as more orders have shifted to off premise over the past.

A couple of years or if your strategy of pricing below inflation as others have taken a more aggressive pricing has had any impact on olive garden's value perception.

Hey, Chris we haven't really seen a big impact on our internal data on on a change in value perception in olive garden, we track both on premise and off premise you know olive garden continues to increase their their their overall satisfaction from five years ago, there's a slope up versus.

As most customers are actually more dissatisfied across across the American consumer satisfaction index, we're bucking that trend all of our brands are bucking that trend and so we haven't seen a big change in value ratings for olive garden.

And we will continue to monitor that we don't think the pricing actions that we've taken are going to change that dramatically because we're still as Raj had mentioned much lower than than than most the full service restaurants combined over two year period.

That's helpful. And then just with marketing dollars down about 60% from pre COVID-19 levels and other changes are starting to spend more on advertising or is there any concern at all that olive garden may lose top of mind awareness, if marketing spend as an increase more aggressively.

Okay.

Yeah, Chris you know as you mentioned, we are lower in marketing spend than we were pre COVID-19 and we're going to continue to wait for the equilibrium.

I'm really proud of the work that Dan and his team has done keeping with our strategy.

And so we had been marketing, but we're marketing are never any first course to remind everybody about the value they get everyday at olive garden were not doing promotional marketing, but we're talking about the value they get every day.

And we will continue to look at our marketing spend over time and if if if had time, we bring that back up we would expect to earn a return on that as we said on the last call.

We still like Olive garden as large in one of their advantages and their scale means that we will be marketing at olive garden. We just want to find the right time to continue to increase that but it probably won't get all the way back to pre COVID-19 levels, but we'll see where equilibrium comes.

Great. Thanks, guys.

We'll go next to Eric <unk> at Keybanc capital markets. Your line is open. Please go ahead.

Hey, Thanks for the question Jim Congrats on a fantastic career, it's really been a pleasure to follow your success over the years.

My question is about the consumer environment, you talked about the ryzen low end and low end wages being offset to some of the cost pressures out there, but I'm also wondering if it might be experiencing some postal macaque pent up demand in March due to consumer might be less sensitive to price increases. So perhaps you could talk about how sustainable you believe the current momentum might be and maybe what factors might contribute to that sustainability.

Eric This is Rick I'll talk about the the sustainability, we've guided what we think our Q4 will be and that includes everything we know today.

And it talks about what our comp sales will be and what our total sales will be which was higher than what we would've guided in December for Q4.

You know there might be some pent up demand from a crime.

But theres pent up demand for Covid.

And it might've been omicron, but there's other things and so we're going to continue to see what the equilibrium is we keep coming back to that word equilibrium. What do we look like when everything is back to a more normal state and is the steady state and we're not there yet.

No we've got geopolitical risks and other things, which is again why we have a wider range in our in our outlook for Q4 than we normally would at this time.

Fair enough and maybe on labor cost quickly you mentioned the heavy excluding cost to your <unk> I'm. Just wondering if you can comment on turnover levels and then maybe quantify how much of a drag if youre seeing any excess all staff training relative.

Relative to normalized levels.

Yeah turnover levels in the last you know you think about turnover the way we manage it it's over a 12 month period and you've got a lot of kind of fluctuation over time, but turnover levels are getting a little bit better for us and a lot of it versus where we were just a few months back and months before that we still have 90 day turnover at a higher level than we'd like it to be so that's.

What we're focusing more on training.

Even more and specifically on our new team members to make sure they get up to speed and they understand what our business is all about and I'll, let Raj talk about the the other part.

Yeah on the on the expense side I'd say just purely the expense part of it probably impacted our margins by about 20 to 30 basis points related to all the omicron impact whether it's overtime sick pay out or training all that stuff is probably in that 20 to 30 basis points range and mind you that doesn't include that deleverage from salesmen.

So that's the other part of it that impacts the margins do.

That's helpful. Thanks.

We'll go next to Nicole Miller at Piper Sandler. Your line is open. Please go ahead.

I apologize if you lost your line, we'll go to Andy Barish with Jefferies. Your line is open. Please go ahead.

Yeah one.

One quick follow up just under $100 million sales impacted quoted I was a little.

Confused was that the <unk> impact and the winter weather impact I, just wanted to make sure I heard that okay.

Yes. It was the impact of both in January we were specifically referring to the impact in January yet from both.

Okay, and then if you could.

Publicly in part a little a little bit of final final wisdom.

On us I mean.

What would you be looking for what would typically show up in consumer behavior.

If the consumer were starting to feel stressed from the from.

From environmental factors.

Yeah, I think I mean, obviously, we've been trying to or aggressive a bunch of different variables back.

In the past recessions that try to to give us a chance to understand what the leading indicator may be.

I think this one so different.

Because of the geopolitical.

Risks involved.

Because of a pandemic that hopefully we're going to switch to endemic and we're able to to to live with this virus going forward.

I think that you know, it's going to take a fairly solid recession.

To really have.

Some impact on the consumer I think the consumer balance sheet is stronger than it has been previously.

I think the biggest variable going forward that as I think about it it's different in every other recession or a period that we had a real slowdown is that there's so many open jobs today and.

And when you think about what really causes a recession its employment.

And.

As things slow down a little bit. It's just it's not I, just don't see companies, especially where the supply chains have been have been somewhat broken and inventories levels are low.

I don't see us getting to a higher a significantly higher unemployment level anytime in the near term barring something really happens bad with it with what's going on overseas and so I. Just think this one is different because of where employment is it's you know it's not like we've perfectly matched everybody that's willing to work with a number of.

Open jobs, we have so many open jobs today and it you know I look at our shop here and say boy. If we had to we had to come in and cut some more overhead it would be almost impossible to do because we have we have a fair number of open jobs here. So that's the one variable that I think is so different in this environment and I don't know how.

It's going to play out.

But remember we're in a business where like in an olive garden, if if three or four tables don't come in Tonight, and that's 12 to 16 guest that's going to have a pretty big impact on the business over time. So we're we're fighting I always say, we're fighting for that last four top that last four top is so profitable.

We need to make sure that we continue to create value great value and we got to operate well.

That's the big thing out there today is is that the operator, I think casual dining restaurants and full service operate our restaurants in general just we just need to operate better.

I think we got we got you know we've got sloppy during during Covid. We've had a we've had to do things to just stay open and get buy we gotta get sharp again and I think our teams are doing a great job and I think you know as an industry, we've got to earn the right.

From the consumer to pay what we're asking them to pay and we've got to provide a really true full service environment.

Thanks again.

And we will return to Nicole Miller with Piper Sandler.

And Nicole your line is open. Please go ahead. Thank you so much I hit the hang up button versus on mute so I apologize.

Two quick ones on Olive Garden, and then and.

And let's say a normalized environment you had mentioned the sales and marketing can you talk about and reconcile a little bit marketing in a framework of discounting.

It seems like a lot of investment has gone back into the store and into the plate really consumer facing areas and so it also seems like it would be tempting with sales just down a smidge to go back to discounting, but maybe that isn't the right strategy could you just talk about that a little bit.

Yeah, Nicole we are really pleased with the strategy that we have.

We believe that it's better to provide an experience with a great guest experience at our people for people our core guests that are willing to pay.

For that experience.

And we would rather not discount we take we took out all discounting out of olive garden and all of our brands.

At Covid I mean, we haven't added that back others have started to add that back, but we are continuing to maintain our strategy of keeping the discounts out of our brands.

Again as the environment changes if the environment changes.

We will consider anything.

But we have a lot of a lot of options are.

Our biggest option is to increase our marketing spend whether it's the.

Even at Undisc, Canada, just to get our strategy our message out at Olive garden of a never ending first course.

That is a great value and as we think about limited time offers in the future. If we have them they'll be at a different construct in than we had before.

But again when equilibrium comes in we know which way we go that route that's when we'll act.

And then is that equally.

Equilibrium does not com I'm curious about chatter, it's not that.

Anyone would or could move this quickly, but if its a weaker macro period do you press on value and.

Marketing the value of Chatters and or even grow the units as fast as possible. It seems like that's one of the best or better value propositions in the portfolio.

In a cold Cheddar is a great value that is there advantages while value.

And we're continuing to improve the experience at Cheddars improve the food improve improve the service experience, while keeping prices much lower in pricing much lower than our competition, which is just going to improve the value perception, even more cheddars doesn't have as much scale to do kind of the TV kind of advertising.

Our best advertising of Cheddars is when you get your check in your seat and you see the price that you are paying you tell your friends and.

We're going to continue to do that and find other ways with digital and other things if we need to to ramp up ramp up marketing in our brands.

And in terms of new unit growth you know those pipelines take a while to build right. So we're building them now you can't kind of turn on a dime if the consumer gets a little weaker and say, we're just going to open quite a few more of one brand versus the other.

But we believe in Cheddars and we believe that they have a lot of growth ahead of them and we're going to continue to build a pipeline of people and a restaurant to capture that opportunity.

Thank you.

We'll go next to Andrew Charles at Cowen. Your line is open. Please go ahead.

Great. Thank you Jim best wishes on a well deserved retirement and Rick Best of luck to you in your new role.

A digital sales as a percent of off premise grew this quarter to 63% from 60% of sales previously.

Rick I know you said the equal or be an equilibrium excuse me for where the off premise mix can go is unclear you relative to that prior 20% plus target, but is there an upper boundary for how high that digital mix of all kinds can go and then I have a follow up.

Yeah, I don't think there's a there's a limiter of how high the digital digital digital mix will go other than 100%, but there are still people that want to call in and dial in and pick up their order.

They may not be as comfortable with the technology, we're trying to make it as seamless and smooth as possible, but we're even making that experience better for the people to dial in how do they pay and how do they how do they pick up so we're doing things on the technology front that may be they don't see as much but that we can get better so that they can still do the do the dial ins for us.

We would like to see the digital percentage continue to grow as part of off premise. It just simplifies the operation the restaurant Theres fewer things that the team members have to do to pick up the phone, etc. But there are some long standing guest I'd just like to call them.

And we will continue to offer that service to them, we will not eliminate dial in.

To get the to get the percentages up.

These percentages have grown because of the investments that we've made and will continue to make and hopefully they'll continue to grow.

Great and then just Relatedly can we expect to see a higher mix of digital marketing in 2023 versus <unk> 22 to drive a higher digital off premise mix and help increase data collection or will the focus of the 2023 marketing message pivot back to driving more diamond sales.

Andrew we're not going to talk as much about what's going on in 2023.

I will say that that whatever the environment looks like whether we need to drive some more dine in sales versus off premise will.

We will do we don't really do a lot of digital marketing on the off premise. So most of our marketing is for on premise.

And so you know if we do any off premise marketing it'll be an increase.

So pretty much most of our marketing is farrar for I'm, sorry, if we do any off premise marketing a bit increase most of our marketing is on premise.

Thank you.

We'll go next to Lauren Silberman Credit Suisse. Your line is open. Please go ahead.

Thank you and G&A also echo everyone's comments that your leadership.

On the accelerating commodity pressures beyond additional price can you talk about any other levers you are looking at the supply chain to help offset some of the commodity pressures any flexibility in some of the ingredients in sourcing.

Yeah, Lauren we really like the way our menu works right now in the in the taste and in our food.

So we don't have we don't expect to go in there and change ingredients significantly to offset some of these costs.

You know, we will continue to work with our supply chain partners to get the best prices that we can get for the for the products I will say is as I said in my in my prepared remarks, we're going to do whatever it takes to get the products that our consumers value and there are consumers expect to have when they come in to.

To eat with us.

You know we were hoping that eventually this disinflationary environment gets a little bit better, but we think we can compete in whatever environment. There is.

Thank you.

We'll go next to Chris <unk> at RBC capital markets. Your line is open. Please go ahead.

Thanks, and good morning, Jean Congratulations and wish you all the best going forward.

So just on the additional pricing you'll take beginning this quarter can you provide any further detail on how you're planning to implement this additional pricing across the portfolio, maybe specifically at your largest brands versus your higher end brands.

Yeah, I think Chris the way, we've talked about before is our philosophy generally to price less at casual dining and and obviously that can vary from quarter to quarter.

I don't want to get into the exact specifics because these numbers change in our monthly quarterly because it is a function of what we're wrapping on on how this goes but generally speaking.

There's a lot of science that goes into how we go about pricing in there that you know that.

Very analytical, but there's also a lot of art.

That that we've gained over time you know the intuition that we develop looking at data all of our time on being in this.

In this business for a long time.

Got it and then.

I guess as a follow up Raj you mentioned productivity initiatives to also help offset these incremental cost pressures that you're seeing so can you expand maybe on what some of these productivity initiatives look like is this just kind of more related to new employee training.

I think it goes back some of that is that but I think it goes back to the things that we did through call. It a lot of this stuff is a continuation of what we've done with simplification, we continue to find opportunities to simplify.

And then you know as Rick said in his comments as we are hiring new people. Our focus is on training them to be more proactive. So there is a lot of new people in our system right now and we want them to be at their best and that takes time.

Got it thank you.

We will go next to John <unk> with Jpmorgan. Your line is open. Please go ahead.

The question was also just on the staffing and I guess, you know who the applicants are in.

22 relative to 19, it was curious or good to hear that your overall turnover levels I guess on an annual basis are beginning to improve but how would you I guess you described the overall productivity.

Productivity in the hospitality elements of your employees I mean is this still basically the thing of the type of employment class that you expect to get back to fiscal 19 hospitality levels or have there been some changes, including your menu simplification.

That might actually allow the calendar 'twenty, two and beyond class to actually execute better.

Then what you've done in the past based on some of the process changes that you've made.

Okay.

Yeah, John you know the answer the question directly I think we can get better.

Continue to get better with this class because of the menu simplification that we've made.

When reducing our menus the way we did.

Has made it a lot easier to run our restaurants are the managers spent a little less time on individual items and teaching people on these these items that we didnt produce very often I mean, we just get better at producing the same things over and over again, which are the things that our guests want.

We've had a couple of things that have happened through COVID-19 .

That had been good for US one is you know we've we've hired some folks that maybe we wouldn't have looked at before maybe it's their first job.

But giving someone their first job and teaching them to do the things the way we do it.

<unk> is a good thing for us maybe in the past we would have said you needed to have a lot of experience in our restaurants before you come to work for ours.

But you know we're seeing that some of these folks that we're hiring that are new to new to work, we're teaching them how to work the way we want them to work and it's actually working out for us pretty well.

We also have seen a lot of re hires a lot of people are coming back to work for us that have left us over time.

And a lot of our managers are re hires and so while people may have left the industry. During COVID-19 a lot of them are coming back and we feel really good about the fact that they're coming back to work for us.

That's helpful. Congratulations again Jean.

We will go next to David Palmer with Evercore ISI. Your line is open. Please go ahead.

Thanks, Congrats gene on a heck of a career all the best to you in retirement.

A question about Cheddars and Darden's acquisition strategy going forward Cheddar has just gone through a lot of change before COVID-19 .

Some of that was more painful and slow than you would've expected, but it seemed to have reached a pretty transformational levels with labor productivity. During COVID-19 . So could you talk about Cheddars, New unit returns today, and what that unit growth could possibly look like going forward for that brand how fast can it ramp and I have a quick follow up on that.

Yes.

Hey, David Let me just say how proud I am of John Wilkerson and his team and what they've done over COVID-19 over two years of significantly changing the business model at Cheddars.

To make it a much more investable proposition for us.

You know as we said.

And one of the earlier questions kind of the new unit opening range of low single digits to high to to up to 10.

We'll probably open more than we've had since we since we bought them.

And we will continue to build that pipeline as we continue to strengthen the team.

The great thing that they have done is build the team to be ready to open restaurants and that wasn't ready when we got them and so I can't tell you how big Cheddars will be but I can tell you that they have a big addressable population.

The values that they provide the value that they provide for the consumer and the food that they have means there's a lot of chatter that can be built out there.

How many can't tell you until until we get some more of these open I will say the restaurants that we've opened through Covid have done really well for us and we feel really good about the fact that we can open more cheddars.

And.

I don't know, maybe you want to circle back on the.

The unit returns part of that but I also have a follow up just on.

What that means is you're getting past cheddars.

Our acquisitions going to be even more in focus for you and I just think it's worth just noting how unusual it would be yes, if garden word it become sort of a.

Get an acquisition premium if you will because right now there's not many plate.

Many companies out there you can see an acquisition strategy paying off in an accretive way, where the multiple reflects that like that <unk> repeat.

Credibility on acquisition. So maybe you want to comment on that capability and how much of this is going to be a focus for you going forward and thank you.

Hey, David if you think about our acquisition strategy, we've made four big acquisitions since 2007.

And you know that should still be part of our strategy going forward. We've proven that we can we can get synergies and we've proven over time. It takes a while that we get these brands up and running and ready to go and grow.

But our management team and board regularly evaluate that and nothing is going to change as we go forward.

We believe darden as a platform a platform that can add brands that helped darden grow.

And continue to build our biggest advantage which is scale.

Thank you.

We'll go next to Jared Garber with Goldman Sachs. Your line is open. Please go ahead.

Hi, Thanks for taking the question and certainly appreciate all the all the great color on the quarter and I think on that on the consumer as we think I think ahead for the rest of the year.

The other question and certainly been asked and answered, but I wanted to get a sense of.

Maybe some other strategies that youre thinking about in terms of making that consumer value proposition stronger outside of the price dynamics, Joe I'm wondering if you can comment on how loyalty plays into your thinking here, whether that's a brand specific program or something across the platform or are there any other sort of.

Strategies that you're thinking through that might you might improve that value proposition outside of just stronger.

Stronger menu.

So does that better got it better value pricing.

Hey, Jared.

Think about our strategy and value proposition.

It's really what we've been talking about for years and our basic simple operating philosophy.

Food service and atmosphere, we're going to continue to invest in food make it better.

And make it more consistent every time you come into one of our one of our restaurants.

We're going to continue to improve our service and we're going to make sure I'm at Atmosphere's are great.

In terms of while we again price continuing to price as our expectation below our competition and below inflation. We believe that that is the best way to build value.

Loyalty.

We've looked at that before we may look at it again I'm not quite sure that that's the that's where the value comes from us to give a discount to your to your highest highest core consumers. Our goal is to build.

An additional visit to our core consumers and we've been doing that without discounting because we're giving them what they want at a price that they think is a fair value for them and a great value for them and we'll continue to do that going forward.

Okay.

Great. Thanks for the color.

Well go next to Jake Bartlett with <unk> Securities. Your line is open. Please go ahead.

Great. Thanks for sneaking me in here and Jean Congratulations just to Echo all the all the thoughts there.

Yeah. My question was on the idea that there's some pent up demand post COVID-19 itself and not just the omicron given all the data intensive you are I'm wondering if you can share any day.

Data on how many what are your school consumers come back in that haven't come come in in a couple of years, maybe how material that is whether you're really seeing a.

Thanks, Yes and consumers.

And I'm thinking.

Thinking more post Covid and then a separate question is just on Regionalisation I think as investors are concerned about what gas prices might be doing with consumer.

Higher prices in different regions, specifically in the west coast with or what are you seeing any more pronounced.

Near term impacts as you think about maybe your quarter to date.

Trends, whether it whether theres much variability there.

Hey, Jake.

Terms of you know kind of this pent up demand for Covid versus omicron, Yeah, we're seeing some consumers that haven't been with us for a couple of years in our dining rooms in our dining rooms right. So there were people there still are a percentage of people that didn't feel comfortable going out.

Even as Delta kind of waned and people thought maybe maybe COVID-19 was was kind of done at that time.

And so we're still seeing guests that are coming back and there'll probably be some more of that come back.

Still a little skewed.

You know if we think about our SKU of demographics, we're still a little bit lower in our mix of of those over 65.

Because I think they felt a little bit less comfortable.

But that mix is getting better.

And in terms of I forgot the second part.

Does that mean.

Geography.

The geography piece I'm sorry, yeah.

Yeah, I don't think we're going to get into the geography in the just three weeks rate quarter to date, I will say that the geographic <unk>.

Impacts in Q3 were much more related to omicron than they were for anything else, depending on what that geographic region felt about COVID-19 versus not.

But but not getting into kind of the gas prices in just a really short period of time, because they're already the gas prices kind of moved up and move down a little bit over over those three weeks.

Got it.

Quick follow up.

You know I think.

Theres more concerned about the lower income consumer.

You mentioned, just that Thats, where the lower income consumers seemed the most wage inflation. So I appreciate that that offset but are you seeing any differences in maybe in quarter to date or February .

In terms of the types of consumers that you are exposed to any any any insight there as to whether there is one is a little more wobbly than the other or whether there are kind of all performing about the same.

Yeah, Jake we're not really seeing a big a material difference in consumers through February March based on anything that's going on the geopolitical environment or what's going on with inflation.

Great I appreciate it thank you.

Sure.

We'll take our final question from Nick <unk> with Wedbush Securities. Your line is open. Please go ahead.

Thank you.

Thank you Jane for all of your wisdom throughout the years.

My question is specifically on just the <unk> costs.

Given the importance of pasta and bread.

It would be just very helpful. If you could frame.

Our exposure in some way, whether it's percentage of the food basket or this.

This is the kind of pricing, we would need to take to offset it.

Is there any way you can frame your exposure, if we should be worried about it.

Yes, maybe I'll just dimensionalize. It for you when you look at our food basket wheat makes up about 7%.

Call it 2% to 3% as pasta related and then the rest is bakery and bread. So that's really where the exposure to wheat directly is a you know we're continuing to see what what what's happens in that market and.

And we will work with our vendors to kind of just make sure we get the best price we can in the environment. We're in.

Great. Thank you.

And with no other questions holding Mr. Carlos and I will turn the conference back to you for any additional or closing comments.

Thank you just that concludes our call and I'd like to remind you that we plan to release fourth quarter results on Thursday June 23, before the market opens with a conference call to follow Thank you all for participating in today's call.

Okay.

Ladies and gentlemen that will conclude today's conference. We thank you for your participation you may disconnect at this time.

Okay.

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