Q1 2023 Darden Restaurants Inc Earnings Call

Please standby we are about to begin.

Welcome to the Darden fiscal year 2023 first quarter earnings conference call. Your lines have been placed on listen only until the question and answer session to ask a question you May press star one on your telephone keypad.

This conference is being recorded.

If you have an objection. Please disconnect at this time.

I'll now turn the call over to Mr. Kevin Kabat, Jackie. Thank you you may begin.

Thank you Jake.

Everyone and thank you for participating on today's call.

Joining me today are Rick Cardenas, Darden's, President and CEO , and Rajiv and 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.

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 Dot com.

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

Looking ahead, we plan to release fiscal 2023 second quarter earnings on Friday December 16th.

Before the market opens followed by a conference call.

During today's call any reference to pre Covid when discussing first quarter performance as a comparison to the first quarter of fiscal 2020.

This morning, Rick will share some brief remarks on the quarter and our focus moving forward and Raj will provide details on our financial results now I will turn the call over to Rick.

Thanks, Kevin and good morning, everyone.

As you saw from our press release, we had a solid quarter in what continues to be a challenging inflationary and uncertain bacharach economic environment.

This was also the first quarter, where we began to see the industry returned to normal seasonal patterns.

I am proud of the way our restaurant teams are performing are.

Our brands remain focused on executing our back to basics operating philosophy anchored in food service and atmosphere, while at the Darden level, we continue to concentrate on strengthening and leveraging our four competitive advantages of significant scale extensive data and insights rigorous strategic planning and our results oriented culture.

Our people bring our brands to life every day and our restaurant teams continue to execute at a high level.

Even with a lot of new team members as our staffing has returned to normal levels.

Our team's ability to be brilliant with the basics is driving strong guest satisfaction across all brands.

He satisfaction measures at Olive garden are at or near all time highs and steaks grilled correctly scores at longhorn steakhouse are the highest in their history.

We remain focused on creating great learning environments for new team members to ensure they are fully trained and execute to our standards.

Further our ongoing investments in our team members helps reinforce our strong employment proposition.

This focus takes on added significance as we open value, creating new restaurants, which further strengthens our scale advantage.

During the quarter, we successfully staffed and opened nine new restaurants, and we remain on track to open 55 to 60, new restaurants this fiscal year.

We also continue to invest in our digital platform and to go sales benefited from these investments during the quarter.

To go sales accounted for 24% of total sales at Olive garden, 14% at Longhorn Steakhouse, and 13% of Cheddar scratch kitchen.

Digital transactions accounted for 32% of all off premise sales during the quarter and 10% of Darden's total sales.

Our technology investments have created an infrastructure that reduces friction for our guests and our operators and we will continue to invest in technology that benefits both off premise and in restaurant dining occasions.

We are also leveraging our scale to help mitigate the impact of heightened inflation during.

During the quarter, we continued to experience significant commodities cost pressure in our supply chain team did an excellent job of working with our suppliers to minimize our offset cost increases to the extent possible.

Inflation remains a headwind for consumers as well, particularly those in households, making less than $50000 a year.

Olive garden's cheddars have more direct exposure to these guests.

Looking at guest behavior across our entire portfolio, we are seeing softness with these consumers while Conversely, we're seeing strength with guests and higher income households.

Even in this environment, our brands remain committed to our strategy to price below their competitors.

Since we emerged from the height of the pandemic you have heard us talk about the search for equilibrium or more normal business trends during the quarter. We saw a return to historical seasonal patterns, which we did not experienced last year.

As we have discussed in recent calls finding that equilibrium will inform our brand's marketing strategies.

As we execute our plans will be very selective in bringing any promotional activity back.

And any promotional activity, we introduced should be evaluated with the following filters.

First it needs to elevate brand equity by bringing the brand's competitive advantages to life.

Second it should be simple to execute we will not jeopardize all the work we have done to simplify operations, which allows our teams to consistently deliver exceptional guest experiences.

And finally, it will not be at a deep discount we are focused on providing great value to our guests, but doing it doing that in a way that drives profitable sales growth.

As an example, olive garden's unique competitive advantage is never ending abundant craveable Italian food.

That is why their TV advertising progressed from spots that feature their never ending first course to those that are now focused on they're made from scratch sauces and anything they do going forward should continue to elevate this core brand equity.

I am pleased with the progress our teams made executing against their strategic priorities during the quarter, our strategy's working enabling us to grow sales increased market share and invest in our people and our brands.

All while continuing to earn to return capital to our shareholders.

Last month, we held our annual leadership conferences, which provide a powerful way for us to engage with every general manager and managing partner across all 1800 and 75 restaurants.

These restaurant leaders.

Hold the most influential role in our company.

And the opportunity to interact with them and listen to those closest to the action is invaluable.

Our leaders are returned to their restaurants aligned to their brands operational priorities and motivated to continue winning.

In order to win we must stay focused on executing our back to basics operating philosophy and leveraging our four competitive advantages as we continue to working in pursuit of our higher purpose to nourish and delight everyone. We serve.

Our guests our team members and the communities where we operate.

One of the ways, we serve our communities as by fighting hunger. Once again. This year Darden is helping feeding America add refrigerated trucks for 10 remember food banks to support mobile fendt pantry programs in food distribution and communities with the highest need.

With the addition of these new trucks twenty-five different food banks have received of trucks since January of last year.

Of course, our philanthropic giving would not be possible without the passion, our restaurant teams have nourishing and delighting our guests on behalf of our leadership team and our board of directors I want to thank our 180000 team members for everything you do to serve our guests and communities now I will turn it over to Raj.

Thank you Rick good morning, everyone.

We had strong absolute results in the first quarter and continue to be pleased with the efforts of our restaurant and support center teams to drive sales effectively managed spending and navigate a challenging environment.

We're lapping record record first quarter performance from last year, which was driven by a resurgence in demand more efficient labor staffing levels below our standards and many other costs that had yet to be reintroduced into the business as we recovered from the impacts of the pandemic.

Total sales for the first quarter were $2 4 billion, 6.1% higher than last year and driven by four 2% same restaurant sales growth and their addition of 34 net new restaurants.

Diluted net earnings per share from continuing operations were $1.56.

Total EBITDA was $340 million, and we paid $150 million in dividends and repurchased $199 million in shares returning a total of $349 million of cash to our shareholders. This quarter.

In the first quarter.

Inflation was roughly 9.5% and total pricing was approximately six 5% almost 300 basis points below inflation.

We expect total inflation and our gap between pricing and inflation to have peaked in the first quarter.

We also expect inflation to moderate throughout the remainder of the year, while our pricing gap should narrow in both the Boston I'm, sorry, Budd the second and third quarter and then reverse in the fourth quarter.

Okay.

And while we have commodity commodities inflation risk in the back half of the year, we have pricing plans ready to put into action, which will help preserve our targeted GAAP inflation for the year, if we see inflation higher than our expectations.

Consistent with what we expected and communicated in the June call the significant level of pricing below inflation pressure at all aspects of our P&L in the first quarter and drove margins well below last year.

As we look to the second quarter, we expect margins to decline less than they did less than they did in the first quarter and then grow was this last year in the back half.

Now looking at the details of the P&L compared to last year.

Food and beverage expenses were 280 basis points higher driven by commodities inflation of 15%.

That's around labor was 50 basis points above last year, driven by hourly wage inflation of just over 9% and wrapping on last year's elevated productivity.

Total restaurant labor inflation was seven 5%.

Restaurant expenses were 10 basis points above last year.

Driven by higher repairs and maintenance expense due to supply chain challenges and utilities inflation of 16%.

Marketing spend was 20 basis points higher as we increased testing of both digital and TV marketing.

G&A expense was 130 basis points below last year, driven primarily by two factors.

Just mark to market expense on our deferred compensation plans was lower by about $7 million and as a reminder, this due.

Due to the way we hedged this expands this favorability has largely offset on the tax line.

Second equity.

Compensation expense related to retirement eligible individuals and our incentive accrual while both in line with our plan was significantly less than last year.

Operating income margin of 10% was 220 basis points below last year, but 60 basis points above pre COVID-19 levels.

Our effective tax rate for the quarter was 13.7% and we ended the quarter with earnings from continuing operations of $194 million.

Now looking at our segments all of our segments outperformed their respective industry benchmarks on both traffic and sales and as Rick mentioned, we began seeing a return to normal seasonal sales patterns.

This was evident in our monthly same restaurant sales compared to last year. When we did not experience typical seasonal softness.

Restaurant sales for June one in the mid 3% range July was in the low 1% range and there were approximately 8% in August .

They also at Olive Garden were 3.7% of all last year and average weekly sales were 101% of the pre COVID-19 level. Despite the significant reduction in promotional activity on couponing, what is that time period.

As we talked about in the past, we believe the pre COVID-19 marketing and promotional activities historically drove double digit traffic.

And when we look at our average weekly traffic at Olive Garden, we're retaining 90 over 90% of pre COVID-19, indicating that traffic trends are flat to above pre COVID-19 levels, when considering historical marketing activities.

Longhorn sales were six 6% of all last year and average weekly sales were 126% of the pre COVID-19 level.

Sales in our fine dining segment, what 8.6% above last year and average weekly sales were 120% of the pre COVID-19 levels.

Our other segment sales were 9.9% above last year and average weekly sales were 109% of the pre COVID-19 levels.

Despite all of our segments, having higher sales have all last year, the high levels of inflation and wrapping on last year's inflated earnings when many costs had not fully returned to the business pressured segment profit margin below last year for all of the segments.

Turning to our financial outlook for fiscal 'twenty 'twenty, three we reiterated all aspects of our guidance in this morning's press release, culminating in diluted net earnings per share between $7.40 and $8 for the year.

Finally, looking at the second quarter, we've seen continued strength in our sales trends with quarter to date sales above the high end of our annual same restaurant sales outlook range.

We also expect commodities inflation close to 13% pressuring the second quarter EPS to be flat to slightly below last year.

And what continues to be an unpredictable here, we're confident we're confident with the underlying strength of our business model and in our team's ability to effectively manage through it.

And with that we'll open it up for questions.

Ladies and gentlemen, if you would like to ask a question you can simply by pressing star one on your telephone keypad, you'll be limited to one question and one follow up question. Once again, if you do have a question. Please press star one.

Will the will begin with Brian Mullan with Deutsche Bank. Please go ahead.

Hey, Thank you.

Rick you know in the prepared remarks, he referenced being some lab continued softness with the lower income consumers with the most exposure Cheddars Olive garden just to the degree you would be able to comment is that consumer feeling incrementally.

More pressure than they were when we heard from you three months ago or does it feel more stable T. Right now it would just be helpful to hear your thoughts given all the crosscurrents.

Hey, Bryan Thanks for the question.

The consumer at the below 50000 is feeling a little bit worse than maybe before but gas prices are helping so if you think about that consumer that $50000 a year and below.

Gas prices make up a big portion of their of their income and actually that consumer spends more money on gas per person than any other income group above them. So as gas prices came down they started feeling a little bit better, but we'll see what happens with gas prices going forward.

And if I can clarify one other thing that I mentioned in the in the prepared remarks, I said that our to go sales were 32% I'm sorry digital sales were 32 presented to go of a of a premise they were actually 62% so sorry about that.

Okay. Thanks, and then just follow up question on marketing you did you did touch on how you feel.

You know approach it from here if you were to bring it back but if you could just maybe elaborate a little bit on how you will approach that I know the goal is to make sure you're driving restaurant profit dollars for the organization, but maybe from a capability perspective or from from how you measure ROI is there anything different.

Going forward and then maybe how you would it did just three or four years ago as you as you bring it back if you do bring it back.

Yeah, I'm not going to get in the detail and if we're bringing it back as I did say in the prepared remarks, you know if and when they introduced promotional activity. It should elevate brand equity in which we've been doing for the last year or so at olive garden that should be simple to execute and not be at a deep discount.

You know our goal with anything we do promotional activity or anything else. We do to drive sales is profitable sales growth and we have ways to measure ROI. The things that we learned through COVID-19 and even wheat and we knew before when when longhorn started to reduce their they're kind of limited time offer price point deep discounted promotions is there was a lot of work.

Involved in getting items that we'd never you don't usually have in the restaurant getting that through the supply chain training it.

And so there were a lot of cost there and so as we as we think about future potential kind of communication methods and the way we talk about our products and promote it as I said is going to be things that don't don't make it more complicated much more complicated in the restaurant.

But it has to has to focus on our brand equities and not be to deep discount.

Well now move to our next question will come from Jeffrey Bernstein with Barclays.

Great. Thank you very much.

Two questions one just on.

The near term results I'm, just wondering how did the the.

The actual comp and earnings compare to internal expectations for the first quarter.

And as you think about fiscal 'twenty three I know the guidance was unchanged, but it would seem like the lower end more likely in a slowing macro I'm, just wondering whether where we're missing something in terms of your expectation for a capri acceleration or more significant inflation easing or more cost savings just trying to get a sense for the first quarter relative to the rest of the year.

Hey, Jeff This is Raj so when we think about you know our plan and our actual internal expectations on our estimate we're basically just told the board that we're basically back on plan. We're back back you know really in line with our internal expectations as we look specifically at the quarter was that a little bit of a mess on the sell side, yes Bernie.

Not not as big as you guys might think and then overall our in our profitability was in line and actually slightly ahead AR.

But again quarter to quarter. There is some volatility that we as the quarter started out as the year started we started to see the seasonality returned to normal and that was really one of the things that changed how we thought about the business and if you look at what's it's pre COVID-19, how we trended the traffic of attention was actually pretty similar in Q1.

The way it was in Q4.

So theres a lot of noise when you look at it year over year because of the reopening last year and especially if you think about California that reopened in the middle of June or late June that'll help olive garden and to some extent yard house Youre wrapping on those levels. So that's why there's a lot of noise year over year, but I think the best way to look at it is versus pre COVID-19.

And when we look at it through that last Q1 was actually like I said pretty consistent with the performance we had in Q4.

Understood and then just a follow up the the comps I think you mentioned in August you're running roughly where you ran roughly 8%.

That seems like a significant acceleration versus the June and July .

You said in September you're running above the four to six but you got it for the full year. So I'm just wondering if you can share any thoughts in terms of why you think you saw such a sharp reacceleration versus maybe June and July didn't know if it just all that compares on a multiyear basis or maybe.

Rick as you mentioned that you think gas prices, helping just trying to get your thoughts on the reacceleration in your directional assumption for the rest of the year. Thank you.

Yeah, I think I would again go back to the reference to pre Covid and if you actually look at it through that lens, you're going to find that August you know, while while year over ear was higher it wasn't that big of an increase versus pre COVID-19 is there a movement of a point or two between the month to month. When you look at it versus pre Covid, yes, but in.

It'll we're actually fairly consistent and I think it's just a you know I know, it's hard because it's three years ago, but that's really the baseline you got to look at if you look at it through that lens, our cadence actually looks pretty reasonable it doesn't look like there's a huge acceleration now there are some specific.

Thanks related to unique and the promotional activity for the brand that when we wrap on that that the P covered retention might be a little different and that is part of how we look at it in that we take that into consideration as we estimate the business and that's where you see the retention or maybe a little bit different month to month because of the promotional activity we might be wrapping on watch this recall.

But when you exclude that in general it's actually been fairly consistent and I would ask I would estimate essentially assumes that going forward.

Well now move to our next question, which will come from John Glass Morgan Stanley .

Thanks, very much and good morning, Rick.

First of all can you just talk about the competitive intensity promotional intensity in the industry. You know everyone. Presumably is feeling the same pressure on the low end consumer. So are you seeing more of a competitive activities for so I heard some of your competitors talk about reducing promotional activity just to repair their margins. So there.

There's a lot of cross currents here, how do you perceive what's going on in the industry from a competitive intensity standpoint right now.

Yeah, we arent seeing a lot of Oh.

Significant promotional activity other than a couple out there there's one brand out there doing a an all you can eat a promotion that they did before COVID-19 at the same price point, there's another brand out there doing an all you can eat promotion at a much significant a significantly higher price point than pre COVID-19.

But I think you mentioned it margins or are challenged in a lot of these competitors and so the ability for them to do significant discounted promotions to drive traffic may not be something that they that they do they do now if food costs come way down they might start talking about promotions and price points.

But you know the margins that you see out there versus pre COVID-19 might make it a little bit harder for them to do some significant deep discounting.

That's great and then you know you talked about your own low end consumer, particularly at Olive garden being under pressure do you intend to target those consumers to stimulate the return to the to your tier restaurants or do you view. This is like look right now, they're not probably dining out as much and so no matter. What you do it doesn't really change their outlook on dining how how do you think.

[noise] about recapturing those visits.

Yeah, I think a couple of things one is let's not read into it that we're seeing a huge huge reduction in that consumer we're seeing a little bit of change in the in the behavior from the consumer but not huge and so we don't want to change what we do just to capture a segment of the of the population we want to continue to focus on what we'd be doing especially.

At Olive garden is to earn one more visit from our loyal guests and our loyal guest span a lot of income levels and so you know anything we do is going to help drive more loyalty from our existing guests whether they are at below 50000 or above 50000 remember.

We said that that 50000 income consumers make up a portion of olive garden, but it's not a majority.

So it's a majority of our consumers still are above that and that consumer, especially above 100 is very is doing very well.

And ladies and gentlemen, if your question has been answered start to will move you from the queue. We will now take a question from Jared Garber with Goldman Sachs.

Great. Thank you for the question Ross.

Raj I wanted to ask about the commodity inflation in the outlook maybe from from here for the next you know.

Three to six months I think you said that there is some risk in the back half of the year.

And it seems like maybe the second quarter inflation guide is a bit higher than what we had been expecting based I guess on some on some recent commentary. So I wanted to just get a sense of what youre seeing and how you're contracting forward and then maybe when we can start.

We're expecting.

Maybe some some inflation easing, particularly on beef I think we've seen some easing in the inflationary environment on some of the costs. There. So just wanted to get a sense of how you're planning for that to flow through throughout the year. Thanks.

S yard I think first of all I want to remind you that the commodities inflation. When we talk about inflation is really a function of what we purchased last year at what price and for US I'll take one one. Great example is we had a great chicken contract are you know I think we were buying a bullish chicken breast in the range of call it mid $1.

Range and as you all know I think or in a two to three months ago. The price of that was as much as $3.50 and I think this week, it's traded its come down to almost dollar $80 85, right. So it's come down a lot the pricing level, we are definitely seeing the movement in the right direction.

What we had expected some of that to happen as we as we guided and and then find a in fact, a directionally things are moving consistent with what we expected maybe not as quite quite as fast as we thought.

But it's not that far off I mean, all our commodities inflation for the year at the beginning of the year. We said were around 7%, we're probably looking at closer to seven and a half, but that's not a huge change for <unk> given the volatility we've had in the market, but as we got to the back half we do wrap on so all of these elevated costs and so as we look at.

At quarter to quarter, we do expect you know as we get into Q3 to be more in that mid single digit rate in a range and as we get to Q4, probably more close to flat to slightly deflationary year over here are the other thing is we have a we all coverage in its really still hard to get coverage.

Too far out and as you can saw from this morning, you know I think we shorted in the in the amount of coverage in our slides here I think we have 50% coverage over the next six months and in fact, when you look at the next three months. That's just our 70, but then after that it's only in ice closer to 30% coverage and so it's still hard.

Got to get you know the farmer premiums are still high and we especially when things are coming down we don't want to lock ourselves in a not have that optionality AR, but again as I said in my comment earlier in my comments earlier, if it ends up being a little bit higher we have we have headroom in pricing to be able to deal with that.

Thanks.

Well now move to our Crystal Cole with Stifel go ahead. Please.

Thanks, Good morning, guys Raj I was hoping you could just level set us for the second quarter. The comps you said were above the 46% range quarter to date, but if the comps relative to pre COVID-19 are pretty steady for the rest of the quarter would that imply much variation.

So.

I think much variation I want to make sure I understand the question right. When you say much variation from month to month within the quarter. If that's the case, yes. There is some because of again if you look at yeah I have to go back look at exactly the pre COVID-19 numbers, but I know that.

Like I was mentioning earlier there is the promotional activity that you have to take into consideration as a base. So when we look at pre Covid, we tease out the impact of promotions and look at that and that's how I would you know we say that's fairly consistent when you look at it taking out that the impact of the promotional activity from then to now.

But you know are we seeing that worse is pre COVID-19. If you are a little bit better September today, yeah, but it's not it's not meaningful it's not it's not big enough to really call. It a trend change.

Okay. I was just trying to figure out if October and November comparisons relative to COVID-19 or pre COVID-19 or relative to last year, even a much very much different from what you have in September you're wrapping in September.

I don't believe so I am trying to think if there is a holiday shift in November but that's the only thing I can think of but I don't think there's anything yet.

Okay, and then assuming the holidays following assuming the holidays following a more normal seasonal pattern this year.

Which of your brands do you expect to be impacted the most on a year over year basis. For example, I would think fine dining performance might accelerate if we have a normal holiday season, but I wasn't sure how all the brands might be impacted.

Actually I think by the time, we got to the holiday season last year I'll say, obviously omicron was a factor that started to kick in late into the holidays and and we expect third quarter to be an.

An outperformer from on the comp side because of that wrap on that but outside of that I know when we look at our segments.

No I don't I don't know that there's anything unique that this year holiday that that would cause us to be different from.

From where we were before Covid and I just want to remind you last year December was a record sales month for us. It was really the omicron impact was kind of late you know basically the last week of December leading into January .

Well now move to our next question that will come from Dennis Geiger with UBS.

Great. Thanks for the question appreciate the details and then the commentary on pricing I was just wondering if you could speak to what you've seen to date as far as the customer response to the pricing and kind of how that impacts. Your go forward thoughts, obviously marrying that up with how you spoke to inflation.

Yeah, I'd say generally the pricing flow through as you know consistent with what we would expect a you know I think Rick mentioned earlier when you look at the lower income is that a little bit of erosion on the add ons, yes, but it's not it's not meaningful enough for us to say that there's a push back on pricing, but mind you were pricing.

A lot less than our competitors and as you think about you know the fact that you know the last quarter, our pricing was six 5% roughly are.

That compares to full service C. P I of 9% and in fact, and then and I'll just point out that when you look at it over a two year basis.

We priced seven 5% and I think fsrus close to 14% on a two year and that just gives you a sense of the fact that we may not be seeing what some others might be seeing because we haven't taken the levels of pricing that that the industry in general has taken.

Okay. I appreciate that and then just I'm wondering if you could speak to dining room traffic levels currently where that stands what kind of runway you may still have within the dining room and in the benefits area to go stays elevated thank you.

Well I think we've said in the past there's not a huge difference in profitability between dining room versus what's your stay call off premise at the margin differential is de minimus across the portfolio or is there some difference from brand to brand, yes, but when you look at through the portfolio of the levels of profitability is not that different.

And you know as we look at.

You know if you are looking at.

What the impact might have if the mix changes I wouldn't say that changes the margin that much and and again, we are two quarters in a row now we're seeing consistent off premise level. So we'll have to see how that plays out over time, but I don't expect the margin.

To change materially based on the change in mix.

David Tarantino with Baird has our next question. Please go ahead.

Hi, good.

Good morning.

Raj I just wanted to clarify a couple of a couple of comments you made on the underlying sales trends so.

My question really is specific to olive garden.

And how your view on the performance for the first quarter relative to what you were seeing prior to the first quarter.

It sounds like maybe you are viewing it differently, but I just wanted to clarify.

Way, we would calculate you know kind of multiyear comps. It did look like a slowdown, but then you did have that promotional activity pre COVID-19. So I guess you know what.

When you sort of make all the adjustments you're making for olive garden, specifically how are your view on the performance of that brand in the first quarter.

Yeah David.

Look I, we're actually very pleased with the work that olive garden team has done in a in a in keeping with our strategy and I'll tell you as we look at our guest count retention, which is the way we look at it you know pre call. It Q4, Olive garden guest count retention was in that low Ninety's call. It 90, 191 ish and in the first quarter.

We're basically in that range. So they are within the within half a point of what Q4 was a.

Was there I think year over year. There are a lot of dynamics, which is why I think theres, a little bit of that confusion as well, but when you look at it on a three year traffic retention from Q4 to Q1 at Olive Garden was pretty consistent.

And then.

The other thing I'll point out is Q1 before COVID-19.

What we're comparing to is the quarter, where we had buy one take one for nine weeks of the eight or nine weeks of the quarter and then we also had a big launch you know of a second promotion that had high Trp's and couponing and in fact, so when you actually exclude all that we feel like Olive garden was actually in a great place and that's the point, we're trying to make is there.

I don't think we are you know I was being close to the business and understanding the details when we take out those nice take that noise out olive garden's performance has been pretty consistent.

Great. That's helpful and then on the quarter to date number I think you said last year you were doing.

Comps versus pre Covid.

Around 7% if I'm not mistaken so if you're you know north of 6% versus that number it would imply a pretty big acceleration versus what we've seen in recent quarters.

It doesn't sound like you're viewing it that way so I guess could you reconcile.

That math for us.

In your comments that maybe you haven't seen an inflection.

Yeah, David I think a couple of things one you've got to take into consideration the pricing difference between over three years and now from the first quarter to the second quarter are then I think when we look at traffic Yeah. I mean, we you know like I was mentioning earlier there is a little bit of a you know a increase versus pre call.

But when we take out the impact from promotions from three years ago, It's not a huge step change. So that's the other part that I think you're missing is like September three years ago. We did not have the same level of promotional activity at olive garden as we did in June and August or the first quarter of this year. So.

That's that's another factor that plays into how we look at it.

Now moving to a question from Peter <unk> with BTG.

Great. Thanks, I appreciate all the color I.

I just wanted to come back to that conversation around the guest count.

Consistency at Olive garden, and just kind of pair that with the commentary you guys made earlier, so just trying to understand I think last quarter.

Rick you had mentioned that there was some check management at Cheddars I think this quarter, you're talking about some slowdown or a weakness with the consumer under $50000 of income just trying to understand how that's manifesting itself right now in these two brands is it more is it more traffic declines or is it check management.

Trying to understand that in the context of what Raj just indicated on the guest count retention at Olive garden.

Hey, Thanks, Pierre I'm, all right, we're getting a lot of questions on traffic at Olive Garden I just wanted to I just want to reiterate we're really proud of the work olive garden's done and Dann has done and the team.

Over the last couple of years, what they've done to simplify their operation to improve margins over time over pre COVID-19 has been great.

They outperformed the industry. This year this quarter in both sales and traffic.

And as I shared in our prepared remarks within our portfolio. They are more and more consumers are below $50000 that doesn't mean that we're worried about the below 50000 out of consumer because it hasn't been a significant move in traffic from that yes, we've seen some check management a little bit.

And as we've said, it's not it's not significant so.

You know our media is a lot lower there's a lot of reasons for that performance at Olive garden and.

And the performance of Cheddars, but we haven't seen much check management, maybe a little bit of Cheddars.

Understood. Okay very helpful. And then just on the marketing expense for the full year I think you guys.

Had indicated previously maybe that would be up about 10 basis points I think in the first quarter was up about 20 basis points you still on track for maybe just a modest increase this year or do you think he guys I'll, maybe take that up slightly given the trend so far in the first quarter.

Hi, Peter This is actually I don't think it has anything to do with the first quarter trends, but as we look at our plants I think we're basically within that 10 to 20 basis points in a quarter to quarter. It might vary but you might see some quarters at 20 summit 10, but that's still what we expect to do for the year.

Thank you very much.

We will now hear from Brian Bittner with Oppenheimer.

Then.

I think there may be some.

Okay.

The trends relative to Ryan Your line is breaking up can you see your line.

Can you hear me Hello.

We hear you better now go ahead.

Okay.

Hum.

Can hear me okay.

I think I wanted to address I think I think there's some confusion and how you're talking about trends.

Relative to pre Covid.

Because clearly we as analysts have no way to strip out impacts of promotions like you didn't really speak to your underlying trend when you speak to it excluding promotions, it's kind of apples versus oranges to our models.

So like for instance, if you hold anywhere near 6% comp for the for the for two Q. It would suggest 400 basis points of acceleration.

In the pre Covid trend from where you were in the first quarter and so I think what we're trying to figure out is there something happening that's more positive in the business recently, then you're leading on or Conversely should we expect that one year trend to come down a lot moving forward to kind of keep that multi <unk>.

Stack trend intact, if that makes sense.

Yes.

Yeah, Brian I mean, I understand where you're coming from but I think you know this.

So much uncertainty in this environment for us to basically say that you know what we set aside in the last three weeks or four weeks and then just to be able to say that should be that new number and that's how we should take a look at it for the full year that doesn't make sense. If we look at what happened over the last six months consistently theres a little bit of movement from week to week, but when you come.

Back and look at it over a larger period of time call. It six or eight weeks, it's pretty consistent and that's really what we're looking at it through that lens and I get the point around the promotions and you don't have visibility to some of that but even if you just look at the absolute number I think for Q1 Q4. He was like I said, 91% 92.

Andy one to 92 in Q1 was basically 91% of pre Covid for at Olive Garden. For example, so it's actually pretty consistent from Q4 to Q1 at an absolute quarter level month to month week to week. There is some volatility, but that's really that's where the promotions come into play.

Okay, and just going back to the first quarter on Olive Garden I know you were happy with its performance and again stripping out the promotions create noise and how you look at it versus us, but you'll obviously versus the quarter before it did slow materially in the trend versus 19 averse.

Pre COVID-19, whereas all the other segments and brands really held steady and I guess the question is this olive garden have a bigger.

Return to seasonality factor in its business and the other brands and also what percentage of Olive garden is exposed to that under 50000 dollar consumer relative to the other brands.

Yeah, Brian .

So olive garden did not have a different seasonal pattern.

Then the other brands.

Seasonality pattern was very consistent with olive garden with longhorn and Cheddars.

The difference in the kind of the two years.

Three year difference are pretty cover the difference.

It was something that Raj said.

In the summer of 2019, we had buy one take one.

In the first quarter at Olive Garden. It was the first time, we did it in the first quarter. So it was about I think a two point swing that we had from Q4 to Q1, but the seasonality was very consistent across when you compare.

As the as the 30000 to 50000 dollar income.

You know chatters in Olive garden, a fairly consistent there is there a little bit higher than they are at longhorn.

But you know, it's not anywhere near the majority.

And and so.

You know, we're not going to give you an exact number but it is higher than longhorn, but its not significantly higher.

Okay. Thank you.

Sure.

Andrew Charles with Cowen has our next question go ahead.

Great. Thank you.

The return of seasonality in the industry that could weigh on olive garden's seasonally like fiscal two cube.

The reiterated revenue guidance. So what gives you confidence that you'll see the benefit of seasonality in fiscal <unk> and fiscal <unk>.

Longer school quarter is strongest seasonal quarters for the business.

The consumer backdrop, particularly at the low end it is a bit shaky here.

Yeah, well when we talk about return to seasonality is based on the consumer backdrop. There is today, it's not necessary.

Something changed dramatically you might see some different seasonal patterns, but my guess is you'll still see the same flows month to month quarter to quarter. It just might be a little bit lower a little bit higher depending on where the consumer is the only difference.

That will see.

And that's versus pre Covid. When you think about versus last year. We are going to have the omicron rep that we have in January basically I mean, a little bit of February so that that should help versus last year on a on a Q3 basis, but you know as we talk about seasonality, it's really more about the consumer returning more to <unk>.

<unk>.

Based on Covid not on there on the economy, because we were basically assuming that the economy stays somewhere around where we are if it gets a little worse that might impact inflation and in a positive way for us and as we said in the call in the first quarter.

If food costs go down 1%, it's better it would offset the 2% decline in guest count I'm, sorry, total inflation goes down 1% it impacts it.

It's the same impact as a 2% change in guest count.

Thank you.

And Lauren Silberman with credit Suisse has the next question go ahead. Please.

Thank you very much I have a quick follow up on olive garden.

It seems like the headwinds and the reduction in discounting and in fact were outsized in the fiscal first quarter given all the promotion to be clear excluding the promotions were three year trends closer to positive mid single digit is that what you'd expect for the rest of the year.

Yeah.

I would say.

Three year trends in sales where would be positive even more than that because we were positive.

Three years ago in sales right now on the traffic side, what we've said in the past is the marketing activity and the spending that we've done in marketing is probably around a 10% impact to traffic.

And Raj mentioned that you know in the first quarter and in the fourth quarter. We were you know in the low ninety's to traffic to pre Covid and that's mostly driven by all the all of the media that we did before in the coupons and other all the other things.

But it was something that we we wanted to do and we expected to see some traffic miss from that.

So the total sale of sales would be higher and guest count would be higher if we were in the same kind of marketing mix we were before.

Understood and then just I wanted to ask that on premise traffic across the industry. It's still down despite what was yours any perspective on why that might be the case and what you can still haven't fully recovered, especially as we enter what seems to be an increasingly challenging consumer environment.

Yeah, I think a couple of things the be off premise experience is a lot better across a lot of places. So people have other ways to get their food from from casual dining than they did before.

And so that could lead to a little bit less a dining room traffic.

Especially as there are still some consumers that don't want to go out to eat.

Well, while a lot of people think COVID-19 is over there are some that don't.

And so you know even with even with restaurant closures a lot of the closures happen in independence in urban markets.

So some of the suburban markets are still doing well and they didn't have as many closures.

But what Raj was mentioning earlier with margins being this basically the same for us on off premise versus on premise because we don't have that delivery charge.

Then we're okay, whether it wherever it is we want our dining rooms to be more full and you're starting to see them fill up.

They're not not all not all brands are back to pre COVID-19 levels Longhorn is above pre COVID-19 levels in traffic.

And so we feel good about all of our brands and what they're going to do the good news is if we're not of our dining rooms arent back to full we've got capacity.

And as we continue to see some improvement as we continue to do the things that we have been doing over the last few years, focusing on simplification, making it easier for our teams to do what they do investing in our food investing in our teams then we're going to have an even better experience as guests come back.

And they are coming back so.

That just gives us more opportunity to grow in the long run because our dining rooms in some of our brands aren't back to pre COVID-19 levels, that's being offset and most of our brands by to go.

Thank you very much.

Moving to Jeff Farmer with Gordon Haskett.

Thanks, just a couple of quick follow ups. So.

Can you update us on where you see G&A dollars for the full year, considering what we saw in the Q1.

Yeah, Jeff I think for the full year, we're probably still close to that 400 million, which is where I think we were before COVID-19. So three years of inflation and other things growth costs. All help all said the.

Corporate restructuring savings of $25 million or so that we got but I would say at this point our estimate is closer to that 400 million for the full year.

And then there were a couple of mentions about this but as we approach that January February .

Time frame when you saw the most significant Oh Mcmullen omicron headwinds.

Is there any color you can provide on the magnitude of salesman sales headwind that you essentially solved without January and February time period.

Yeah, I think I think last year. We you know if you go back we talked about that impacting our sales by about 100 million call. It in that $90 million to $100 million range. So that's really the tailwind as you look at a year over year on the sales front.

Okay I appreciate that thank you.

Yeah.

Well now move to John Tower with Citi Go ahead. Please.

Great. Thanks for taking the questions just two for me first Rick.

Your comments earlier in the prepared remarks in answering some of the questions about promotions only coming back on if they're profitable does that mean that we may see historical promos of the past show up again, but priced at a level that's more profitable to darden. So for example, I'm thinking like never ending pasta at Olive garden.

Yeah, John we're not going to discuss our plans for competitive reasons.

But you know as we've said a few times and it today anything that we do should emphasize our brand equity.

And the more promote more profitable than they were before.

Okay.

And then I guess just following up on another comment earlier in the call. The idea that you are seeing strength in that higher income households are those over 50000 can you just talk about how that's showing up in the business either across the brands or within brands are you seeing say for example.

Higher traffic growth at Olive garden in that sub segment or is it more about the check growth I'm. Just curious if you could get that out a little bit.

Yeah, John I think there's a few ways to kind of tease that out one is look at our fine dining business and how well, they're doing and the sales that they've had even though.

In the in the first quarter are the.

The urban markets haven't reopened yet really much and a lot of people had gone back to work we had a significant difference in fine dining in the suburban markets versus the urban markets. That's tightening now with with people going back to work, but fine dining is doing really well.

Any of our other brands in the other segment you've got yard House you guys seasons, 52 are doing very well because of that consumer.

And at Olive Garden, you know our mix has changed and so our consumer is a little bit higher and so long think about longhorn longhorn caters to a little bit higher consumer and their sales are still strong and traffic is still strong versus pre COVID-19. So there's a lot of ways to see it.

And we're seeing the ability as we take price in some of the fine dining brands, there's really no pushback. So we think that that that is a broad based a benefit for us because we have a portfolio of brands at that that kind.

Kind of run the spectrum of the consumer.

So when a when one segment of the population isn't doing as well. The other segment is then we're still okay and then if it flips the other way we are okay.

And so right now there's just one segment of the population that's being hurt a little bit more by inflation than others and the good news is we've got brands that aren't impacted by that.

Yep.

Moving on to Eric Gonzalez Keybanc go ahead. Please.

Hey, Thanks, good morning.

Maybe one about your guidance it was encouraging to see that you reiterated all the components of the outlook.

Raj last quarter, you commented that the guidance implies full year margin 23 will be will exceed that of pre COVID-19 levels, but if I look at where things fell in the first quarter.

Seven 5% was about 50 or 60 bps below where you were in the first quarter of 'twenty. So the question is do you still expect those store level margins to exceed pre COVID-19 levels for the full year and second can you give us a bit more color on how you expect the margins to progress throughout the year and what some of the levers outside of pricing that you can pull to bring it back up.

Yeah, Eric I, let's say, we always talk about margins at the full.

Operating profit level or EBITDA level I. The reason, we do that is because theres a lot of difference in are we you know if we manage G&A barra that give us flexibility to put more costs into the investment into the four walls. So we don't focus as much on the four walls as the full because for us at the end of the day, the total portfolio right, where the where are we further.

We'll P&L where are we from an EBIT margin where are we from an EBITDA margin. If you look at it through that lens first quarter was higher than pre COVID-19 by about call. It 60 basis points on the op profit level and 40 basis points. When you look at it through EBITDA.

So let me start with that and then as we look at the full year do we still expect restaurant level margins to be better than pre COVID-19, yes, that's what's embedded in our guidance for the full year that the cadence of that is going to be that we have you know if you.

You recall last year, the first and second quarter had the most improvement versus pre COVID-19. So that's why you saw you know year over year decline in the first quarter, we expect that to narrow a little bit in the second quarter, but still declined versus last year, but still ahead of pre COVID-19 and then as we get to the back half we expect to be higher than last year, that's what I'm about.

In our guidance and and then part of that is that the shrinking gap between pricing and inflation.

And again this was planned full whereas we went into this year and so we expect at this point, we expect it to play out that way.

That's very helpful. Thank you.

Yes.

And our next question will come from Andrew <unk> with BMO.

Great. Good morning, Thanks for taking the question I wanted to come back to the value and pricing discussion and you noted I know I know I'm asking this question amid all the inflation, but you noted.

Chicken breast prices Havent come back and you mentioned that beef prices haven't come back. So I guess, if we do go into kind of a more deflationary environment, you do see commodity costs really pull back.

How do you think about promoting value throughout your brands and do you feel like you know we ended up in a position, where we're making were all sides from a value perspective.

Casual dining group I know, we used to talk about food at home food away from home I don't know if you you know how you think about that risk, but just curious for your thoughts on the levers maybe if if we were to go into that scenario.

Jeff we're going to in a scenario that that food cost deflate, even more or reduce even more than we have in our estimate already because remember what I've said in June in the June call and even today as we continue to expect food cost to go to <unk> to go down to the inflation to go down from where it was in the first quarter.

And I'm, assuming that our competitors are assuming the same thing.

That said.

We don't anticipate changing our messaging to be a pure value play we think we have value on our on all of our brands everyday base.

Based on the investments that we've made in our food the improvement that we have in our service.

And you know our brands are going to talk about whichever ones do any kind of communication their equities and at Olive garden is never ending craveable abundant Italian food at longhorn its quality.

They talk about quality it doesn't have that they don't have to talk about price.

And at our other brands, we talk about it at Cheddars. It is well values. So cheddars talks more and digitally it will be about value because that's their equity. So we're not going to change our marketing based on what the what's happening with food cost.

We're going to market based on our strategy.

Okay.

Okay. Okay, great. That's helpful. And then I apologize if I missed this you mentioned staffing being back to.

The normal levels, but can you just give us an update on what youre seeing in terms of turnover in application flow. Thank you.

Yeah, we continue to get significant increase in applicant flow across the country. We have a new talent management system, we've had it for over a year end.

You know that system allows applicants to automatically schedule. There there are interviews etcetera.

And we've got so many interviews schedule, we're going to have to figure out how to maybe slow that down because managers all they're doing is interviewing a lot of places. So we've got a really good applicant flow.

As we said you know we opened quite a few restaurants this quarter all of them were fully staffed.

With great people ready to go.

Our turnover our manager retention is much closer to pre COVID-19 levels, it's pretty close to pre COVID-19 levels and well better than the industry average our manager retention or a team member retention is also well above the industry.

But it's not quite back to pre Covid levels. So you know our teams are focused and.

And as we mentioned we had our our general manager managing partner conferences last month and most of those conferences, we're talking about ensuring that we train our new team members and improve retention and we think that's a that's a key for us going forward.

We will continue to focus on trying to get our retention levels back to pre COVID-19 levels.

Okay.

Well now move to our next question that will come from David Palmer with Evercore ISI.

Thanks, Good morning, I think I think you said all traffic at olive garden's down 9% versus pre Covid Raj I think you said that you know that's the inverse of the 91%.

And if if to go mix was up.

Maybe nine point since then the dining room traffic would be down more than that you know maybe mid teens or something like that so maybe you can confirm if that's about right, but I'm wondering how how much you look at that traffic gap in the dining room versus pre COVID-19 as an opportunity that you that you can invest against in a good ROI type of fashion.

<unk>.

Traffic that was simply not profitable and not worth chasing with TV advertising L T OS or coupons cause.

It's just not efficient spend and you've got a healthy reset with COVID-19.

Yes, David I think well, let me start by saying your numbers are right that that's accurate are the.

Yes does that present, an opportunity in the dining room, absolutely, but we're going to go about it in a manner that's actually sustainable.

And that's where do we go back to well what are the last three years, we've invested so much into under pricing inflation. If you look at where olive garden's pricing has been over the three years combined full three years combined is that 10%. When you look at where our full service C. P. I S restaurant CPI was for the same timeframe its seventh.

On a half percent.

So we've actually significantly underpriced, the industry and actually you know I would argue significantly underpriced, maybe not to the same extent our competitors. So that is the way we believe to build back that guest and you know Rick mentioned getting that one extra visits from our loyal guests. We think this is a sustainable durable way to really.

Get our guests back it's going to take time, it's not one magic you know, let's let it dry people in today or tomorrow, it's just going to happen over time and I I would argue that we're starting to see the fruit of some of that but it takes time.

And I just want to add one thing David which is what you said you know some of those guests that we were doing in these dining rooms might not have been as profitable as we'd like right. We had a lot of coupons. There were times that we had five coupons in one week.

At Olive garden, when we were running never any possible right and so we have to we had to ask ourselves is that the right thing to do to drive traffic just to have a full restaurant.

If that traffic really isn't very profitable, we do a lot of work when they're there and so are we better off with a loyal guests that doesn't need all of those discounts to come in and we can serve them. They know what theyre going to get they they'd get a consistent experience. So you know everything Raj said I agree with but.

You know our strategy is to we've significantly reduced discounting it's such a small part of our of our of the number of checks are very very minimal and we'd like to keep it that way.

The other comment that you said in the opening comments I think you said their customer satisfaction levels were near highs.

I don't know if I'd have to go back and check but what brands. You were maybe you were talking about there that's pretty striking because I think the industry customer satisfaction levels or are near lows.

<unk> kind of gotten roughed up by a tough labor market. So are you finding that you've sort of your gap to the two peers has dramatically shifted.

And the reason I ask that is because given your strategy you know we see obviously best in class operators, they have very thin marketing and promotion budget so to some degree.

There might be a return on the customer sat.

Gap that you might be thinking about at this point thanks.

Yeah, David we specifically mentioned olive garden being at or near record highs and we talked about longhorn having their steaks grilled correctly it at record.

But I would tell you that you know cheddars is at a record high for us in the time that we've owned them they've got the highest satisfaction they've got the lowest dissatisfaction they've ever had we've got the same thing at a at Olive garden high satisfaction Longhorn I believe they're at their highest our overall ratings.

If not the highest or as close as they've been because cooking mistake right is a big part of satisfaction.

At our other brands at seasons 52 satisfaction is really high so we haven't really seen we've actually bucked the trend on consumer satisfaction not just in the not just in the category. If you look at consumer satisfaction of customer satisfaction for the last few years, it's been on a decline ours is not and we think it's because of what we've done over.

The last few years and even the last five or 10 years to continue to improve our guest experience to continue to add add more value on the plate and to be consistent.

You know we've got a core group of team members that work in every one of our restaurants that have been there a long time, our restaurants are fully staffed in general you know we've got pockets of restaurants that are that are under staff, but those are the same kind of pockets that we had before COVID-19.

And so we believe that the things that we've done over the last few years have helped improve guest satisfaction.

Because we've got great loyalty members.

So.

Is that part of the reason that we arent do we don't have to do as much versus others on the marketing front perhaps.

But what I would say it gives us even more confidence that if we do turn on some media that we're going to we're going to execute really well and delight even more people.

Thanks.

And with Bank of America, Sara Senatore. Please go ahead.

Thank you.

Two follow ups one you.

You made the point that you made the point that you collected gas.

In food away from home and your own in pricing has been quite wide, but you also said that you expect that gap or your inflation and freight inflation and your pricing gap to narrow. So I guess just is there a lag.

Which presumably means.

GAAP with the collect is that with the C. P. I have around well all scenario is there like sort of at a specific ratio.

Ratio you'd like to keep or I guess, how do you think about that.

Tourists of having that very wide gap and but at the same time.

Now as perhaps support for margin. So that was one question and then my second question is just on margins overall as you think about your versus pre Covid I guess my sense is that I think.

Soldiers are.

Chatters in particular, but as we think about kind of structural earnings power, what's the right segment margin.

Giving guidance.

Across the different.

Segments Olive garden Longhorn.

The fine dining and other just to get a sense.

Yeah, well, what normalized earnings should look like by segment. Thanks.

Okay. So that's a lot. So let me start with the pricing gap first and then I'll get into the margins.

So the comment I was we were making was specifically quarter to quarter movement in the ear, but what we're targeting for the year is about 100 basis points gap to our inflation. This is not necessarily the fracking the food away from home on that but the I don't anticipate that our gap to the full service restaurant C. P. I.

We'll shrink this is more about what's going to happen over the life by a lot. Maybe you know instead of 50 basis points more mature, but is it going to shrink a lot now what we're talking about is we are targeting for the year as we said at the beginning of the year. We said you know.

Proximately, 6% inflation total inflation and approximately 5% pricing and we're continuing to what are you, saying that we'll continue that but the gap is the largest in the first quarter.

It's really a function of you know year over ear on the commodities being at those highest levels. So as they come down that the gap to that inflation will narrow and might actually even reverse a little bit on it in one quarter and the fourth quarter, but the point here is that when you look at it over time, our gap is still a pretty wide in it we expect that.

It remains that way it related to the full service C. P I.

And an implied also related with the competitors. So that's the thing on the pricing side as far as margins versus pre COVID-19, our guidance implies that our margins will be less than last year. However, they will be still higher than pre COVID-19 is still implies you know.

Call. It 40 to 50 basis points erosion over this last year for the full year of our omni versus pre Covid is still somewhere close to $1 50 is what that implies as far as individual segments. I think the benefit of the portfolio is that our ability to react differently to different situations and so to the extent you know we.

Have we don't want to put a specific target by segment, because that really box yourself into a corner and what the way. We would think about it is you know if the consumer on the high end is doing well, maybe we get a little bit more margin from there and invest in the places where we need to and so we're thinking long term.

To get to this portfolio number, but we continue to kind of really evaluate that and played by the or based on the environment and so we want to just be more nimble on that front.

Okay. Thank you.

Yeah.

Now, we'll move to a question from Danilo <unk> with Bernstein.

Thank you. Good morning, So first question I'd like to understand a bit better.

On kind of the demand.

The markers that you're looking for for the marketing expense to accelerate as a percent of sales in particular, its just not.

Kind of additional softness in traffic what are the markets that youre looking for.

Yeah, I would say that.

You know this year, our marketing is going to be 10 to 20 basis points above last year. What are specific markers, we're looking at to significantly increase marketing.

You know there there's quite a few one is we're going to continue that we're testing right now and in some some digital marketing and other media to see which one drives the best ROI and when we feel like it's time to turn that on we will you know we're going to make sure that our turnover is back to a more reasonable level our guest experience.

There's still great.

But there's no one individual marker that we're gonna say this when this happens we're going to turn on media. We just don't want to let our competitors know what the markers are.

Thank you and then a follow up on unit growth. So we know what it is that on a fine dining basis, what's the reduction of our.

Net reduction of three units. So I'm wondering is there going to be a different composition in terms of kind of the plan of your portfolio going forward or what's the reduction just a kind of a quarterly reduction that you don't expect in the longer run.

Yeah, a couple of things one we had one of our restaurants catch fire.

And it had to close temporarily but.

Yeah, Yeah, and we have yeah, we moved.

Capital Burger into the other segment.

Versus fine dining before and there's there's three capital burgers in there.

But we we open a restaurant in fine dining, but we only had one total closure.

So our total openings across the year are going to be consistent with what we said in June .

Okay.

Well now hear from Brian Vaccaro with Raymond James.

Good morning, and thank you I just wanted to follow up on the Labor environment. Then you said staffing levels or less of an issue in your guest sat metrics are strong. So maybe there's less of an issue for you, but you know on the returns it seems like retention training rebuilding teams and culture seems to be a significant chunk.

So a lot of companies in and outside of the restaurant industry. So could you talk a little bit about how you're navigating these challenges what changes or adjustments you've made and what are some areas, where you still see opportunities to improve on the labor front.

On the labor front or the staffing front. So a couple of things one yes, when we hire when we have a lot more hires.

Than we normally do because we were trying to fill our restaurants back up and when our turnover is a little bit higher than it used to be that leads to higher training.

But you know we've got a great employment proposition, we're continuing to build up our certified trainer ranks some of them left the industry. When COVID-19 happened. So we're going to we're just going to ensure that we do what we did before COVID-19, we're going to make sure when we hire somebody they get on boarded like they should.

Should a darden restaurant that they go through the training all of the training and they're not just kind of thrown into the into the woods.

Because of short staffing in the fortunate thing is we're not really short staff. So we have time to spend to train our team members.

In our industry.

Like many service industries, most a lot of the turnover happens in the first 90 days.

So when you spend the time on training somebody and they leave within 90 days, there's a lot of costs. So we're focusing our efforts.

And hiring the right people and training them to our standards. So they don't leave in the first 90 days and if we can just get that back to close to pre COVID-19 levels. Our retention is going to be back to pre COVID-19 levels.

And that will save a lot of money on the P&L.

That's a that's helpful color and Raj I think you said hourly wage inflation up around 95% up a little over 9% in this quarter I guess with staffing levels recovered I'm curious to what degree do you expect hourly inflation to moderate over the next few quarters.

Yeah, Brian we expect for the full year to be around 8%. So that does imply there's some moderation as we go through the you know through.

Through the year.

Yeah, you're right, we started with a little bit over 9% in the first quarter, but again, we had we had if you look at last year cadence you got to look at you know that there was a step up in the back half of last year. So as we wrap on that we don't expect it to be at those levels yet.

Alright. Thank you and then last one from me shifting gears just for a second.

I wanted to ask about the path to sustaining higher margins in a post COVID-19 world I realize Cogs is a big piece, but I ask it in context of Olive garden store margins that are sort of for the first time running a couple of hundred bps below pre COVID-19 levels, and I guess, where do you see ultimately cogs settling out.

You know over a multi quarter or.

12, plus months out from here and maybe it's not getting that specific maybe just walk through or remind us. The line item dynamics that you need to play out to achieve higher margins in a post COVID-19 world. Thank you.

Hey, Bryan I'll start and then ill turn it over to Raj and maybe some line items, but if you think about olive garden Olive garden had the highest inflation of any brand at Darden this quarter.

You had a lot of chicken inflation Olive garden says a lot of chicken. There was there was there was inflation wheaton inflation in cheese, and so that basically is olive garden's menu.

So that's why you saw a little bit more of a margin squeeze pressure at olive garden, but we have a portfolio that allowed olive garden to continue to price the way they've been pricing.

And so we would expect over the years.

Our cost of sales to move back towards where it was before.

And so we made some investments during COVID-19.

To shift some costs some spending from marketing to cost of sales. We did that at longhorn we did at olive garden, but we would expect our cost of sales to get back to a more reasonable level over the next few years, it's not going to happen in one year, it's going to happen over a few years.

As food cost becomes more normal.

But if if raj wants to add any more color on the different margin line items.

No I would just say you know obviously in the near term from a margin perspective on the line items, we expect food cost to be higher we expect but everything else to be lower than than pre COVID-19. If you look at you know restaurant labor is better than pre COVID-19 because of the productivity improvements restaurant expenses are better than pre COVID-19, our marketing is.

Other than pre Covid, and then G&A is better than pre COVID-19. So these are all the other line items that are actually helping foreign to solve the mark.

The deal with this higher inflation and in helping fund some investments we've made into the play.

But then as Rick said over time, we will continue to evaluate what makes sense and you know as a as inflation kind of normalizes or gets deflationary on the commodities front that gives us more room to kind of balance back overtime.

Yes.

Thank you very much.

Now, we will hear from China, Evanko with J P. Morgan.

Alright. Thank you Rick at the very beginning of the call I think it was it was you Rex I apologize if I'm, making this up yes. There was a mention on your technology investments that you need that could potentially influence both the on and off premise experience could you I guess elaborate a little bit more in that I mean is that more.

You know kind of yeah.

Employee facing work that could potentially drive some efficiencies are there any customer facing.

Initiatives that you're seeing particularly on the off premise side that you think could increase sales even if he could you just elaborate a little bit you know what.

That means I guess, both over the near and medium term in terms of opportunities that the brands and they have on the technology side from this point forward.

Sure John I want to start by saying, we've got a great team on the I T team that does a lot of work.

On the guest experience and the team member and the manager experience.

We've been spending a lot of our efforts over the last few years improving the to go experience, because that's where that's where the business was.

And we'll continue to make investments in the off premise experience, where we've got some things that are in test now that'll help the guest.

The guest on the on.

On the off premise experience, but we've also got some things that were working for the restaurant managers to make it easier for them to do their job.

If the manager job is easier than they can spend more time with our team our team can be trained better and spend better time with their guests.

And so we're going to be spending some time and energy on focusing on things that make their manager's job easier.

And we're also still doing some guest facing things that the restaurant, but not overtly in their face and so how does how does somebody get on the waitlist, a little easier how does somebody check in to the restaurant a little bit easier how do they pay for their check a little bit easier. So there's there are some things that we're still working on.

Across all of those are all those dimensions and the benefit of our scale is we can do that we can test it in one restaurant in one brand and move it to the other brands.

And it kind of leverages that spanned across more restaurants.

Thank you.

Next we have Chris Carroll with RBC capital markets.

Great. Thanks, good morning.

Just following up on off premise can you talk about how that roughly 10 point swing in olive garden off premise sales mix versus pre COVID-19 levels potentially impacts the check or maybe mix specifically versus those pre COVID-19 levels that we're comparing to and then as you're thinking about the balance of the year does your guidance is.

Jim the off premise mix stays steady from here.

Yeah, Chris our off premise mix I mean, I think pre Covid, we were running close to 15, 16%. So are you now at eight.

8% more than that.

That doesn't really change the check that that differently. There are you know there there is a little bit less beverages, but there are other add on so when you look at overall, it's not a big difference. The other thing is the catering is one mix that could that has an impact on the check average, but it's again, it's not huge at this point, but there is some.

That we have seen some resurgence in our in fact, when you look at over the last two quarters, while our total off premise mix stayed pretty consistent at olive garden that 24% Theres more of Ah, Indeed, theres more of catering and a little bit less of a individual to go but ended up being 24% of total sales, but it was just a different mix.

So that's really the only mix change, where we've noticed on the off premise, but but really no major impact on the check.

And then as we look at guidance I mean that Theres really not a lot of you know we don't again I think we kind of expected. This to you now come down a little bit, but but given where we've been over the last two quarters. We're not we're not we're not assuming a big change or a big decline.

And off premise and guidance, but but but our belief is that to the extent there is some change there that's all set in with dine in.

And one last thing just so you know the third quarter is generally a higher stock premise experience right because you get a lot of catering a lot of a lot of parties. So what I would say is after Q2, we might.

It is what it is but Q3 may be higher than you would expect because of what normally happens in our third quarter and together.

Got it that's helpful.

And then just returning to labor costs. I think you mentioned you expect wage inflation to be about 8% for the year, but what's your total labor inflation outlook, just inclusive of any kind of productivity measures or any shifts in hours or anything like that.

Yeah. The total labor is somewhere in that six to six 5% year over year, because you know last year, we already got all the productivity last year. So we don't see a huge year over year, a significant improvement in productivity in fact as I was mentioning first quarter, we were wrapping on elevated productivity from last year, but but.

Six to six and a half for total labor is how we're looking at it that includes the indirect labor as well as the salaried managers' salary and all that stuff.

Got it okay. Thanks, so much.

Yeah.

Now, we'll hear from Nick the tie in with Wedbush Securities.

Okay.

Thank you.

It would be really helpful. If you could.

Can you just tell us what that pricing at olive garden.

And then what is expected to be for the full year versus longhorn.

And then just a clarification was the month to month volatility in the quarter or was it largely driven by olive garden or was it very similar across the brands. Thank you.

Let me start with the later first of the month to month volatility was actually pretty much across all our brands I think we kind of had June was you know like I said mid threes for the portfolio that delta between Darden and Olive garden was pretty consistent quarter to quarter, I mean month to month during the quarter. So there wasn't a huge 111.

Our one brand that was driving that volatility month to month.

On the pricing side.

You know I don't want to get specifically to our brand, but I mentioned already that when you look at over three years Olive garden's pricing has been 10% and the artist pricing is also basically 10% 10 point too. So it's within olive garden being such a big part of our portfolio, what we say about Dod and pretty much represents what olive garden is going to be.

Thank you.

Okay.

Ladies and gentlemen, this will conclude your question and answer session I'll turn the call back over to Kevin for any additional or closing remarks.

Thanks, Jake that concludes our call I'd like to remind you we plan to release second quarter results on Friday December 16th before the market opens with a conference call to follow Thank you all for participating in today's call.

And once again, ladies and gentlemen, this does conclude your conference. Thank you for your participation you may now disconnect.

Okay.

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Okay.