Q4 2023 Darden Restaurants Inc Earnings Call
Good morning, welcome to the Darden fiscal year 2023 fourth quarter earnings call. Your lines have been placed on listen only until the question and answer session.
Ask a question you May press star one on your Touchtone phone.
As a reminder, 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 Daryl and good morning, everyone and thank you for participating on today's call joining.
Joining me today are Rick Cardenas, Darden's, President and CEO and Raj Phnom CFO .
As a reminder comments made during this call will include forward looking statements as defined in the private Securities Litigation Reform Act of 1095. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Those risks are described in the company's press release, which was distributed this morning and in its filings with the Securities and Exchange Commission.
We are simultaneously broadcasting 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.
<unk> in the presentation.
Looking ahead, we plan to release fiscal 'twenty 'twenty four first quarter earnings on Thursday September 21st before the market opens followed by a conference call.
During today's call any reference to pre Covid when discussing fourth quarter performance as a comparison to the fourth quarter of fiscal 2019.
And any reference to annual pre Covid performance is a comparison to the trailing 12 months ending February of fiscal 'twenty 'twenty.
Additionally, all references to industry results today.
Referred to Black box intelligence is casual dining benchmark, excluding darden, specifically olive garden, Longhorn steakhouse and Cheddar scratch kitchen.
During our fourth fiscal quarter industry same restaurant sales decreased 0.7% and industry same restaurant guest counts decreased 7%.
And during our full fiscal year 2023 industry same restaurant sales increased two 7% and industry same restaurant guest counts decreased five 5%.
This morning, Rick will share some brief remarks recapping the fiscal year.
Raj will provide details on our fourth quarter and full year financial results and share our fiscal 'twenty 'twenty four financial outlook.
And then Rick will close with some final comments now I'll turn the call over call over to Rick.
Thank you Kevin and good morning, everyone. We had a solid quarter to conclude what was a very strong year. Despite a tough environment, we significantly outperformed the industry benchmark for same restaurant sales and traffic.
And met or exceeded the financial outlook, we provided at the outset of the year.
For the full fiscal year, we grew sales by eight 9% to $10 $5 billion.
Delivered diluted net earnings per share of $8 and opened 57, new restaurants.
We also opened nine new international franchise restaurants in six different countries, which is the most we've ever opened in a fiscal year.
The market responded positively to our performance leading to a total shareholder return of 32, 6% for the fiscal year.
We have consistently delivered strong long term shareholder returns.
In fact since Darden was spun off from General Mills 28 years ago, a period, which spans multiple business cycles. The company has achieved an annualized T S or a 10% or greater over any 10 fiscal year period.
Our restaurant teams continue to execute at a high level by remaining focused on our back to basics operating philosophy anchored in food service and atmosphere.
Our brands ongoing efforts to drive execution through simplification enable our restaurant teams to create guests great guest experiences as evidenced by record level performance. We saw for many of our brands on key holidays throughout the year.
Nowhere is it more apparent than at Olive garden, which achieved the highest sales day in sales week in their history during the week of mother's day.
This focus on being brilliant with the basics leads to strong guest satisfaction scores and our internal guest satisfaction metrics remain at or near all time highs across our brands.
At Longhorn Steakhouse, one of their most important metrics is their steaks grilled correctly score, which is at an all time high.
To continue to drive these results Longhorn recently completed their six steak Masters series, which is their annual grilling competition and training program.
Over the course of two months thousands of culinary team members competed in this highly engaging training program for the right to be crowned champion and received a $15000 Grand Prize.
Congratulations to this year's takes Masters champion Kelley Hall from the Longhorn Steakhouse and Farragut, Tennessee.
I am, particularly proud of everything the teams in our restaurants and at the support center accomplished in fiscal 2023.
For example, olive garden's successfully introduced never ending pasta Bowl.
Which leveraged their iconic brand equity.
Was much simpler to execute and.
And significantly improve margin, while still providing tremendous value for their guests.
Throughout the year several of our brands ranked number one among major casual dining brands and key measurement categories within technomic industry tax tracking tool.
Including longhorn for food quality, and Cheddar scratch kitchen for value.
And several of our brands, who are recognized as industry leaders in employment practices by Black box intelligence.
Olive garden, the capital grille and seasons 52 were honored with the employer of choice Award in Longhorn and Eddie V's received the best practices Award.
Throughout fiscal 'twenty twenty-three our strategy served us well.
In addition to our back to basics operating philosophy, driving strong execution in our restaurants darden's four competitive advantages of significant scale extensive data and insights rigorous strategic planning and results oriented culture enabled our brands to compete more effectively and provide even greater value to their guests.
Our significant scale allowed our teams to successfully manage through the highly unpredictable inflationary environment, while continuing to underprice inflation over the long term.
All four of our advantages are unmatched within the restaurant full service industry.
These advantages are leveraged by our portfolio of iconic brands all generating high average unit volumes with extensive geographic footprints.
Our strategy is the right one for our company and our advantages were further strengthened last week with the completion of the acquisition of Ruth's Chris Steakhouse.
Ruth Chris enhances our scale advantage fits our culture and complements our portfolio of iconic brands.
We are so thrilled to add such an outstanding brand and high caliber talent.
And our experienced team is working hard to integrate Ruth's, Chris in the Darden with as little disruption as possible.
I'm proud of the results we achieved in fiscal 2023, and we will continue to execute our strategy to drive growth and long term shareholder value now I will turn it over to Raj.
Thank you Rick and good morning, everyone.
Total sales for the fourth quarter were $2.8 billion, 6.4% higher than last year, driven by same restaurant sales growth of 4% and the addition of 47 net new restaurants.
Our same restaurant sales for the quarter and outpaced the industry by 470 basis points and same restaurant guest counts exceeded the industry by 540 basis points.
Diluted net earnings per share from continuing operations increased 15.2% from last year to $2.58.
We generated $472 million in EBITDA and returned $183 million to shareholders.
Total inflation slowed meaningfully this quarter to 4.4% 270 basis points less than the third quarter, while the rate of pricing decrease from last quarter to five 9%.
Turning to the fourth quarter P&L compared to last year.
Food and beverage expenses were 30 basis points, better driven by pricing about commodities inflation of roughly 3%.
Chicken and seafood experienced deflation this quarter, helping offset high single digit beef and beat inflation.
Restaurant Labor was 40 basis points better driven by productivity improvements.
Restaurant expenses were 30 basis points better than last year, driven by sales leverage.
Marketing expense was 1% of sales consistent with our expectations and 30 basis points higher than last year.
This all resulted in restaurant level, EBITDA, improving 80 basis points to 27%.
Our general and administrative expenses was what 30 40 basis points higher than last year, driven by the timing of our incentive compensation accrual as well as unfavorable year over year Mark to market expense on our deferred compensation.
Due to the way we had to this expense dishonour favorite ability is largely offset on the tax line.
Our effective tax rate for the quarter was 10.4% and we generated $316 million in earnings from continuing operations, which was 11.4% of sales.
Looking at our segments.
Olive garden, Longhorn and our other segment increased same restaurant sales by 4.4% seven 1% and 2.2% respectively.
Each significantly outperformed the industry benchmark.
The strong same restaurant sales performance girl segment profit margin at each of these segments higher than last year, especially at Longhorn where segment profit margin of 18, 6% was 70 basis points higher than last year.
Same restaurant sales at our fine dining segment decreased by 1.9% still outperforming the black box fine dining benchmark, excluding darden by more than 200 basis points.
This resulted in segment profit margin below last year at the fine dining segment.
This year.
This year over year sales decline was more the result of a rapping on resurgence of demand in the fourth quarter of last year, which drove traffic retention to 108% of pre COVID-19 levels.
Looking at traffic retention trends over the past three quarters.
Fine dining has been consistently between 101% to 102% of pre COVID-19 levels.
We expect continued year over year traffic softness in our fine dining segment as we wrap on the first quarter traffic in fiscal 2023 that was at 107% of pre COVID-19 traffic levels. We.
We expect traffic to stabilize on a year over year basis after the first quarter.
As we look at our annual results for fiscal 'twenty 'twenty. Three we had strong same restaurant sales of six 8%, which outperformed the industry by 410 basis points and our same restaurant traffic was 510 basis points above the industry.
The strong top line performance drove 1.6 billion and EBITDA from continuing operations.
We returned $1.1 billion to shareholders and ended the year with $368 million of cash.
Looking at our fiscal 2023 full year results compared to pre Covid operating income margins have grown 140 basis points.
Food and beverage as a percent of sales increased 380 basis points, driven by investments in food quality and pricing well below commodities inflation.
Offsetting this unfavorable it'd be where improvements in labor productivity reduce restaurant restaurant in marketing expenses and G&A efficiencies.
Our strong operating model generates significant and durable cash flows.
Since 2018, we have delivered approximately 8% annualized EBITDA growth.
At the end of fiscal 2023 our balance sheet was well positioned at just 1.8 times adjusted debt to EBITDAR well below our targeted range of two to two five times.
And when we look at our performance compared to our long term framework over the last five years, we've been achieve we've been able to achieve annualized total shareholder returns of 14.2% as measured by EPS growth plus dividend deal.
This is near the high end of our target and was driven by annualized earnings after tax growth of 10.2% above the high end of our framework.
As your tons were four 4%, which is at the middle of our framework.
As we look to the future, we still believe that overtime, our 10% to 15% target for total shareholder returns is appropriate.
We're increasing the share repurchase range to better reflect the impact of our share price appreciation since we last updated the framework five years ago.
The updated share repurchase range is 300 million to $500 million.
Before we get into our outlook for fiscal 'twenty 'twenty four I want to provide an update on the acquisition of Ruth's, Chris, which we completed last week.
This was financed through a 600 million dollar term loan and cash on our balance sheet, bringing our adjusted debt to EBITDAR to approximately two times.
As we as we move forward into 'twenty 'twenty four sales nonprofits from Ruth's, Chris Company owned and operated locations will be included in our fine dining segment.
While revenues and profits from the franchise locations will decide in our other segment.
Staying with the treatment of our existing franchise locations.
However, fine dining same restaurant sales results will not include Ruth's, Chris until they have been owned and operated by us for a period of 16 months.
As we mentioned in our conference call in early May we expect to achieve run rate synergies of approximately $20 million by the end of fiscal 2025, primarily through supply chain on G&A savings.
We also expect Ruth's, Chris will be accretive to earnings per share by approximately 10 to 12 cents in fiscal 'twenty 'twenty, four and 'twenty to 'twenty five in fiscal 2025.
We anticipate total acquisition and integration related expense of approximately $55 million pre tax.
Now turning to our financial outlook for fiscal 'twenty, 'twenty, four which includes Ruth's, Chris operating result, but excludes the aforementioned acquisition and integration related expense we expect.
Total sales of 11.5 billion to $11 $6 billion driven by the addition of roots Costar portfolio same restaurant sales growth of two and half to three and half percent and approximately 50 gross new restaurant openings, including four relocations.
Capital spending of $550 million to $600 million.
Total inflation of approximately 3% to 4%, which includes commodities inflation of approximately 2.5% driven primarily by beef and produce while most other categories are flat to deflationary.
All in all an hourly labor inflation in the mid single digits.
And annual tax effective tax rate of approximately 12 to 12, 5% and approximately 121.5 million diluted average shares outstanding for the year.
All resulting in diluted net earnings per share between $8 55 and $8.85.
And finally, our board approved an 8% increase to our regular quarterly dividend to $1.31 per share implying an annual dividend of $5 24.
And with that I'll turn it back to Rick.
Thanks Raj.
All of US at Darden continue to work together in pursuit of our higher purpose to nourish and delight everyone. We serve.
During the year, we served more than 410 million guests.
We also promoted nearly 1300 hourly team members into our manager in training program and promoted 320 managers to general manager or managing partner positions.
And we continue to invest in our team members' development with new programs like fast fluency, which allows them to learn English for free and our next course scholarship program that awarded Postsecondary education scholarships were $3000 each to nearly 100 children or dependents of Darden team members.
We also remain committed to Larry King and the lighting the communities we serve through our ongoing efforts to fight hunger.
As part of our Darden harvest food donation program, our restaurants donated 4.4 million meals to local food banks in fiscal 2023.
We also continued our successful partnership with feeding America with another $2 million donation from the Darden Foundation that helped provide mobile food trucks to 10 different feeding America food banks.
Bringing the total to twenty-five food banks across the country.
The addition of Ruth's, Chris gives us the opportunity to nourish and delight, even more guests more team members and more communities.
As I said earlier they are an excellent addition to our portfolio and I want to welcome Cheryl Henry and the nearly 5000 team members from Ruth's Chris.
We are excited that you are now officially part of the Darden family.
I also want to thank our team members in our restaurants and our support center put outstanding efforts throughout the year. We're fortunate to have the best people in the industry and I'm proud of their commitment to caring for our guests and each other.
Now we'll take your questions.
Okay.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press star two to remove yourself from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, we ask that you. Please limit yourself to one question and one follow up question. One moment. Please while we poll for your questions.
Our first questions come from the line of Jon Tower with Citigroup. Please proceed with your question.
Great. Thanks I.
I guess, we'll start off I'm curious to you'd mentioned in your release the idea that the environment has gotten a little bit choppy during the fourth quarter. So I'm curious to see what you would.
If you could articulate what exactly you saw in the backdrop with respect to consumer behavior, specifically at your own brands and perhaps industry wide and then I got a follow up on that please.
Hey, John This is Rick I mean, as we've talked about the Choppiness of Q4. It was really fine dining going up against last year's very strong bounce back from them a crime.
And so this quarter as we alluded to at the end of that in the third quarter was this quarter was going be a little bit tougher fine dining because of how they how they bounce back and actually Raj already alluded to that Q1 will probably be the same kind of toughness because of the bounce back last year, but that said.
The consumer seems pretty strong overall and within the restaurant industry and based on our internal and external data sources. There appears to be only minimal switching between lower priced occasions at this point not all of that is switching with them.
And overall, we're not seeing anything concerning.
You know what I will say as you think about mix we've talked about this before we're not seeing material changes in our check trends across our core casual brands.
Theres no negative mix of Cheddars.
And we are watching add ons and trying to understand if there's some cracks there.
But we don't see any really cracks there and but one area, we're seeing a little bit of check management is with alcohol sales provide primarily at our higher end brands and we think part of this is because a function of last year similar to the guest count trends. We saw in last year, there was probably a little bit of euphoria and check last year. So that's kind of where we think about the consumer and we didn't we didn't really think the quarter.
Choppy, we expected that to happen and that's what happened.
Got it thanks for the clarification I appreciate it.
Curious on the unit growth outlook as well it looks like Youre expecting slower unit growth openings versus what you had previously thought is that just a function of integrating route and at the same time Capex went a little bit higher so could you explain what's going on there as well.
Yeah, I think Oh, it's not necessarily integration of routes you think about what we're seeing on openings.
Capex was higher and we wanted to be prudent as Raj said in our last call we want to be prudent in making sure that that we're earning a return that we really want to earn in our restaurants.
And you know we've had some contracts are starting to come back in and bid for sites that they stopped bidding for during during the pandemic and even after the pandemic, which should make bidding more competitive we're starting to see that and so we wanted to be prudent and make sure that we have the right returns and we still have great returns in all of our restaurants.
And that's kind of where it is or is not really because the roof.
Got it thanks I appreciate the question.
Thank you. Our next question is coming from the line of Chris I'll call with Stifel. Please proceed with your questions.
Hi, great good morning, guys.
Well actually I had a question about the guidance I'm just thinking if you exclude the 10% to 12% earnings accretion expected from roofs in the guidance. It looks it would seem to imply EPS growth below your longer term outlook, particularly at the low end.
Or are you seeing any indications today that the underlying business could be softening I guess or are you expecting.
As to soften over the course of this year I'm. Just curious if you can give some color as to why the underlying business seems to be growing at a slower rate.
Yeah, Chris I think look we're taking into consideration all of the information we have right. We think we you know we build a plan based on all the information we have today.
And if you look at what the consensus economic forecast is for the next year, it's flattish G. D P. A and I know that in that.
You know in a year. If you if you look at last year, where GDP was growing the industry was still had negative traffic right, so and while we outperformed quite a bit and we expect to continue to outperform we're taking that into consideration as we build our plan.
But if you look at the midpoint of our guide are you do get to a decent base business growth and that's kind of how we build a plan and then we did the guidance ranges to incorporate some variability around that and that's how we that's how.
How do we really think about it.
So you're not seeing any softening today, you're just kind of keeping a more conservative outlook based on what the predictions are for the economy over the next 12 months.
Yeah, well I would say.
I would say that it's not a softening today I mean, if you look at the last few weeks I think where our gap to industry is fairly similar but.
But as we talked about Q1, we do expect some softness in fine dining that's just a function of rap but outside of that no. We're not seeing any trends that would in any recent times that would indicate that.
There's a major change in our in the underlying environment for us.
Great. Thanks.
Okay.
Thank you our next questions come from the line of Eric Gonzalez with Keybanc capital markets. Please proceed with your questions.
Hey, sure. Thanks, Raj just regarding the comp guidance, the two and half to three and a half can you maybe talk about what level of pricing you're embedding within that outlook.
That compares to the two where you've exited fiscal 'twenty, three which I think was around 6% and then also do you have an underlying assumption for the industry's growth rate for the year.
Eric So the way I would think about it is our our our our comp guidance of two and half to three and half we expect to have pricing in that three and half to 4%.
It would imply a traffic of flat to negative one five for the year for us in that range would imply that.
You know you can extrapolate from that what they implied industry can be we're not expecting in our GAAP to be significantly different going into the year AR, but we focus a lot more on things, we can control and we look at all the factors, we have year over year and taking into consideration the macro environment and then just build up.
Our as far as coffee you know exiting the pricing yeah, we we exited the quarter with closer to 6% as we said in the end, but we expect that to tick down throughout the year, so start with that call it 6%, but by the end of the year by Q4, we get closer to the 2%.
Now lot of the pricing actions, we took last year.
Already impact next years by about 3% so the carry over from prior years, probably close to 3%.
And so that's really where we are.
Got it and then just maybe as a follow up to that as you think about the.
Industry traffic remain challenging and you mentioned GDP being flattish essentially this year have you noticed any significant uptick in promotional activity, thus far and as the year progresses. How you think your promotional strategy might evolve.
And what levers could you call it if that's needed.
Hey, Eric This is Rick you know, we look at what the competitors doing and you're seeing some promotional activity and competitors. We've got one one major competitor that launched a little bit more T V or jump back on the T V.
But that said you know our strategy remains the same on the marketing side you know, we're going to continue to be to have advertising in olive garden because of it because it's a big competitive advantage for olive garden, but we're going to continue to use our filters first elevating brand equity by bringing the brand's competitive vintages of life.
It's simple to execute and it's not a deep discount so, whereas we've talked about in the last call, we're going to stick to our strategy of core guest count growth will react accordingly, if something really changes, but when we increase our marketing spend if we do we expect it to earn a return so we don't necessarily expect us to go back into the deep discount craze.
And that's our strategy sticky and we're gonna try to stick to it.
Great. Thanks.
Thank you. Our next question is coming from the line of Brian Bittner with Oppenheimer. Please proceed with your questions.
Yeah.
Thanks, Good morning.
I'd like to just go back to the 2024 EPS guidance.
Kind of as a follow up because as Chris suggested yes, when you strip out Ruth you do have this lower implied.
Core business earnings growth relative to your long term framework, but.
Yeah.
Same store sales guidance is slightly above the framework. So I was just wanted to.
Dig in there a little bit more is is it being driven by under pricing inflation. I know you said kind of pricing at three and a half to four but in relation to three to four so it doesn't seem like you're planning on underpricing inflation that much.
Again trying to understand those dynamics, a little better given the comp guidance is above your long term framework.
Yeah, Brian I think the way you know we look at it is if you look at our framework or actually even excluding you know routes of you know the.
The middle of the guidance for royalties that 11th and accretion if you take that out we're still in that.
T S. Saar, that's north of 10% at the middle of our at the at the Middle of the guidance range No. One of the things I want to point out is we haven't been able to buy back shares for almost three months now because in the trading blackout.
And so that has an impact on an EPS for next year.
But even with that you know like it's as we said, we still get to that in our double digit T. S. R. When you incorporate the dividend deal then the and the EPS growth.
Okay.
<unk>.
The follow up just as it relates to the total cost inflation outlook, 3% to 4%.
Obviously realize commodities are up 2.5% within that total framework of 3% to 4% can you just touch on some of the other assumptions that's pressuring the inflation to be above the commodity outlook.
Yeah, Brian it's really a labor in a more I expect you know are the hourly wage inflation to be in that call. It mid single digits.
And then the salary to be also closer to that.
Some of that is a function of how we choose to you know pay our people are you know we are our merit increases have been above the industry and we think that's prudent we want to continue to do that and that's that's that's the type of investment we make to help us.
Sustain the types of performance that we've been able to Delaware you look at it for a 500 basis point gap to the industry that doesn't happen magically. There are a lot of things that go into that and and you know we are very thoughtful about how we make those visions.
Thanks Raj.
Thank you.
Our next question is coming from the line of David Palmer with Evercore. Please proceed with your question.
Thanks.
Wanted to ask you about your assumptions on same store sales through the year and.
And in particular, if you have any thoughts about where you know I often are.
Concern about a multi year trend slowing over this next fiscal year, and how youre thinking about that potential in your guidance.
Yeah. The way we are thinking about you know in terms of how we build our plan is that we expect retention levels to be fairly similar.
To moderate a little bit relative to pre COVID-19 from where we were you know this fiscal year, so not a significant drop off but a little bit, but then I think for a from a same restaurant sales force factor, it's going to be driven by the pricing difference is the fact that you know we're going to start off with the higher price and then the price you know.
Moderates down to the rate of pricing goes down to 2% by a closer to 2% by Q4 that will have an impact on same restaurant sales as we think about guest counts as I mentioned the retention, we expect it to be fairly consistent quarter to quarter are related to last year.
And with regard to advertising and what what sort of assumptions are embedded into your earnings guidance for advertising spend.
Are we basically are assuming somewhere in that 10 to 20 basis points more than what we spent last year and more in total marketing. So that's kind of not that different from what we did in fiscal 'twenty three.
Got it thank you.
Okay.
Thank you. Our next question is come from the line of Andrew Charles with TD Cowen. Please proceed with your questions.
Great. Thank you.
Given the slow macro forecast for 2024, I'm curious how that impacts your thinking around neverending pasta at Olive Garden, you had the one value oriented promotion that fits your promotional framework I guess the question is are you open to changing the timing of the promotion.
<unk> been running at two different times during the year to keep pace and the potentially slowing macro background backdrop.
Hey, Andrew for competitive reasons, we're definitely not going to talk about plan details. We do believe there's never any possible is a really strong promotion for us, especially with the changes we made last year and so you know we'll look at any P. B and if there's things that we can do with it but are definitely not going to talk about if we're going to do it twice.
Okay, and then Raj please help us what's embedded within 2024 guidance for G&A.
Yeah, I think so, especially with roots coming in are you sure.
We ended the fiscal year was closer to $390 million I'd say at this point our best estimate is probably you know still maintaining closer to that 3.7% of total sales, which would get you closer to that in a call at $430 million for the year, you know, obviously plus or minus 10, there, but that that would be the there number one.
Would.
That is embedded in our guidance.
Helpful. Thank you.
Hey by the way as we talk about G&A, just I just wanted to clarify one other thing we.
We do expect the cadence to be a little different. So Q1 is probably going to be the highest level call. It closer to $115 million and then you know kind of ticked down 5 million a quarter throughout the for the next few quarters is how we think about it just from a cadence standpoint. So there are some things that are there.
Sudden specific variables that are influencing our Q1 to be higher.
Thank you. Our next question comes from the line of Chris Carroll with RBC capital markets. Please proceed with your questions.
Hi, good morning so.
Just returning to the same restaurant sales growth guidance for 2000 core can you provide any more detail on how youre thinking about your largest brands olive garden, and longhorn and how they fit into this we've been pretty clear so far I'm fine dining and how you expect comparisons to impact that segment in the very near term.
But just curious if you could provide any additional thoughts in your largest brands and how they factor into the comp guidance.
Yeah, I would say the way we think we're thinking about it as a core casual brands are probably closer to the you know I guess, let's just go through the big brand. So at Olive Garden is probably would be not middle of the range is our expectation going in.
And then longhorn would be outside of the range to the upside primarily because of steak inflation on the pricing there, it's probably a little bit higher would need to be and and then in our fine dining to be a little bit south of that and that's really how we're thinking about it.
Okay, Great that's really helpful and then.
You mentioned productivity improvements helped to drive the improvement in labor in the four Q. So how are you thinking about productivity improvements from here.
Maybe in the context of growth send an X rates and just how much of a tailwind that could be in 'twenty four.
<unk>.
Yeah, Chris you know as we've said before over the last years, our brands is a great job improving productivity. We would expect to continue to have some productivity improvements over time, but not to the extent that we had during COVID-19.
As we continue to look at improving training, having turnover come down and that should help productivity a little bit we're not going to necessarily discuss crews right. Now we've only owned them for eight days. So we'll have to just get through the getting through integration is going to actually probably be a productivity a downer for them for a little bit so, let's let us get a let's let us get routes under our belt for a little.
Longer than eight days before we talk about the details there, but as I said labor productivity, we should expect it to tick up better as the year progresses as we continue to improve on our turnover and as we and as we continue to improve our training.
Great. Thanks, so much.
Yeah.
Thank you our next questions come from the line of David Tarantino with Baird. Please proceed with your.
Hi, Good morning, Rick I wanted to ask your thoughts on the current macro environment and.
Yes.
I'll actually line up with what the industry is seeing in terms of traffic I mean traffic down 7%.
I haven't seen those types of numbers since maybe Oh no nine so I'm just kind of wondering what what's your thoughts on traffic and I know darden's been outperforming but I think even your traffic was slightly negative in the quarter. So I guess, what what's your thoughts on what's weighing on the traffic and the overall environment.
Yeah, David Thanks for the question.
I did say earlier that you know.
We have not seen an impact is in the consumer as much as maybe their competitors have and I think theres a couple of reasons for that you know, there's a tension between what people want and what they can afford.
And you know even in a in a slowing economy consumers really continue to seek value and it's not always about low prices.
It's about execution, it's about what the experience they get in the restaurants or wherever they are you know they are making spending trade offs and as I said before food away from home is really difficult to give up if you're executing and so when we think about is what it means to our brands what it means to what we do every day.
And we believe that operators that can deliver on their brand promise.
And the value that guests guests a pizza that appeals to guests. Despite economic challenges is what's going to get you to win and that's what we've been doing so whatever its been happening to the to the consumer and the economy in the in the restaurant space, we're going to control, we can control and what we can control is the experience that our consumers get in the restaurants every day.
And the value, we provide and we continue to hope that we're going to Buck the trend of a guest counts are that the industry has and we would expect to have a gap to the industry.
Great and then maybe maybe just one follow up on that I mean do you.
Pricing for the industry has has become one of the issues you know as it relates to traffic yeah I know.
You've priced a little less than the industry, but I think do you think that consumers are becoming more price sensitive in today's economy.
You know I think there might be some price sensitivity and consumers overall, whether it's in the restaurants or what have you, but you think about GDP trends. So over the last four quarters. GDP has continued to tick down and that would mean that traffic would tick down everywhere, whether it's at a restaurant or it's in a retail establishment wherever it is as GDP continues to tick down you would.
<unk> traffic to tick down yes, the industry saw a little bit more of a hit to that and I do believe part of that it was because of the bounce back from them or from last year. In Q4, I don't think we were the only ones who benefited from that I think others did.
And so let's see how this all plays out we've given you our guidance for the year, which does assume negative traffic.
And and it actually assumes less negative traffic than the industry. So that should tell you. We think there is a little bit of softness there, but we're going to continue to perform and do the things that we do every day to bring guests into our restaurants.
Great. Thank you.
Thanks.
Thank you. Our next question is coming from the line of Jeffrey Bernstein with Barclays. Please proceed with your questions.
Great. Thank you my.
First one just on cash usage.
The share repurchase as part of your long term algorithm is I guess at the midpoint going up by like $200 million.
And you bumped the dividend by close to 10% and the Capex is going up a little bit more than perhaps what you previously thought I'm just wondering what's what's going in the other direction.
And I think of that in the context of.
M&A I mean, I know you've returned to the market with the <unk> acquisition, I'm wondering whether youre seeing.
Potential for more maybe the valuation challenges that you previously noted have been easing any thoughts there would be great and then I had one follow up.
Yeah.
Yeah, Let me talk about the cash and then I'll turn it over to Rick for the M&A commentary.
So as far as cash usage, if you look at our business, we generate somewhere around $1.7 billion to $1.8 billion with our guidance would imply a in in terms of cash operating cash flow. So between the dividend and the capex are and with the share repurchase we still would be building cash or maybe at the.
You take all the mid points of all of those ranges, we would still build at about in a cash balance of call. It maybe close to $100 million. So we're really not tapping into any borrowings or that to increase to two to meet these commitments we have embedded in here.
As far as the long term framework share repurchase range that is really to reflect the change in our share price from five years ago, because we haven't updated the framework for five years. So all of that change you know as much as it feels like it's double that's basically reflecting that our share price has doubled in the editing that timeframe.
Now with that I'll, just turn it trick you know I'll just add something to that if you look at think about the cash flow or EBITDA pre COVID-19. Our EBITDA was about $1.2 billion and today you know with based on what Raj was saying. It's 1.71 0.8, so that gives us a lot more cash to do those things and increase our share share a share buyback.
And M&A and so if you think about we've talked about M&A, often M&A adds to our scale, which is our biggest advantage and.
And you know we continue to talk to our board management continues to talk to the board about our best uses of capital and M&A is one of those.
And so but we just got we just got done with the Ruth's deals with us let us do a little bit there doesn't mean that we wouldn't be back in the market down the road, but we've got plenty of cash we've got plenty of debt capacity Raj said, where it basically two times adjusted debt to adjusted EBITDAR and that's at the low end of our range. So we have plenty of capacity to do more.
Yeah.
Got it and then just.
A clarification the I'm just wondering if you're going to provide pro forma restated maybe darden results for the quarters of fiscal 'twenty three.
If you own the roof the entire year.
It's tough.
For us to model with the different quarter and year ends and with Ruth operating a 50 50 company franchise model just trying to.
Get some color as to whether or not you'll provide any any help from a modeling perspective or any pro forma type results to give us better insight into the growth rate going forward. Thank you.
Yes.
Really the the the fiscal calendars are when you look at the quarters. We're only a month off we don't plan on V, stating the history I think and I also want to thank cable or you know how material. It is to the overall darden P&L.
Thank you our next questions come from the line of Sara Senatore with Bank of America. Please proceed with your question.
Great. Thank you.
Clarification that you talked about the cadence of pricing over the course of the years.
It does seem that you're thinking the cadence and input inflation will follow suit in the center.
Of course, the ear is there.
A reason to believe that maybe that the knapp.
Yeah.
Between pricing and inflation might look different and therefore, the implications for margin might be different over the course of the year. So that's the first question and then I'll have another one.
That was please.
Hey, Sara a great question as we think about inflation.
We don't expect.
The cadence to be significantly different I think we have a little bit in a little bit more in the first quarter, but not a huge difference. We're talking about 50 to 60 basis points may be different from quarter to quarter. So that three to four range as what we provided for the overall you can expect first quarter to be closer to four and then the other quarters might be closed you know I'm, a little bit less than that.
But then.
There's really not a meaningful difference between quarter, so that would imply that year over year, there's a little bit of a delta in pricing versus inflation, because what we are starting with the higher price as we get out of Q4, where we exceeded the Q4 levels.
So I know you also said you had a second question so I'll wait for that yeah. Thank you.
And then actually just to clarify on that one and then I'll ask the question what you see.
And that by the fourth quarter, you'll be needing to find more productivity gains or something else.
If you have less price, but sugar level loaded in place and over the course of the year.
Yeah, I think we do it we do expect the gap to.
It works by the time, we get to the back half in fact, the way we look at when we look at our quarterly earnings in our in our in our that are embedded in our guidance the cadence.
It's while it's more balanced than last year, we do see Q2, providing the highest growth while Q4, providing the lowest from an earnings standpoint in Q1 Q3 more in line with the annual growth that we provided okay. Thank you very much and I'm. Just a quick question I know I know Rick you said, you've only had it for April but presumably yeah. There's.
A lot of diligence went running ahead of that so and I know you mentioned 20 million roughly by the end of fiscal 2025, primarily coming through supply chain and G&A. If I look at the restaurant level margins for Ruth Firstly like are you fine dining.
Is that right.
Michael on our classic races that the primary difference as I think about it.
So what bridges that gap.
Well, we've said in the past that most of our G&A at most of our our synergies come from G&A and supply chain. So.
When we have in the past that it's about half and half whenever we've done acquisitions before so yes, Ruth should get in the long term then it benefits from from cost of sales now.
Now that said, we may reinvest some of those cost of sales and our other brands will get some of the benefits too so it won't all flow to routes.
I will say that there aren't many brands in the industry that we could acquire that actually improve our EBITDA margin at the restaurant level and Ruth's death, so across Darden now they might not be as high depending on how you look at it is as capital grille, they might be higher a little bit lower depending on your definition of restaurant margin, but they're there.
Pretty close and so and because capital grille is higher than Darden's average margin Ruth's helps darden's margin. So that's a that's a pretty good deal for us.
Thank you both so much Tampa.
Sure.
Thank you. Our next question is coming from the line of Jeff Farmer with Gordon Haskett. Please proceed with your questions.
Thank you just following up on modeling posts Ruth acquisition, you shared some information on G&A, but.
Anything you can share as it relates to how we should be thinking about both interest expense and D&A moving forward.
Yeah, Jeff I'd say interest expense is likely going to be I think for a year over year, we're probably looking at a total of 15 million of which 40 is related to the roots acquisition.
And then the other is just the lease interests and other short term interest rates are in exposure. We have so that's that's the thing on the interest on the DNA I would just really take into consideration the darden's DNA and then lay it on boots from what you have there'll be some purchase accounting that we're working through so we'll have somebody.
Dates on that but that will be more of a geography.
More so than a huge impact we've embedded some incremental step up in our valuation and in our P&L and that's incorporated in our guidance, but we're not ready to share those details yet okay and just one more.
One of your named competitive advantages over the last several years, there's been this extensive data and insights.
But can you share maybe one or two examples of how you were able to leverage that data in 'twenty, three and potentially some some untapped opportunities as you move forward in terms of.
Harnessing, you're really analyzing that data moving forward.
Yeah, Jeff.
This is Rick you know you think about what we're starting to do with data where you're starting to use a lot of AI and machine learning to help guest count forecast and help our restaurants forecast their business better and that would move all the way down through the through the company right. So if you forecast your traffic better you order better you receive better your schedule better that's one of the big the big.
Things that we've looked at is is using machine learning and AI.
And but you got to remember one of the things that that we do every year as we use data to help look at what our guest patterns or what you think about guests and how do we market to our guests.
We also improved operations execution with the data that we have but I would say if youre asking for one big thing and is analytics through pricing too so.
You know, we've got a great analytics team here that does help with our pricing. They they look at restaurants. They look at categories look at items. They look at elasticity and we can do all that in house because of our scale.
Alright, thank you.
Sure.
Thank you. Our next question is coming from the line of Danilo Gargiulo with Bernstein. Please proceed with your questions.
Good morning.
Wondering what is the integration timeline that you are embedding in your EPS accretion expectations and how is the <unk> reputation of Cheddar is impacting the timeline that you were expecting and you know.
What will it take for this integration to accelerate and I'm talking even beyond the 2024 timeline that you set today.
Hey, Danielle we're still working through the steps, but our expectation is you know a lot of the stuff happens over the next 12, a 12 to 15 months.
And so that's why you saw those synergies come later, because we're not trying to we're trying to be prudent we're going to be thoughtful we got a design. This right make do this right because we want to set it up for success long term work and we want to make sure we minimize the disruption to operators and so everything we're doing we have a great team working on it that's.
Actually being very.
Very thoughtfully phasing in these parts of integration and how we integrate different parts of the business and and we've learned a lot from our tariff acquisition, obviously chatters was a more complicated with that with the you know essentially three different businesses being brought under one roof with roots, it's not it shouldn't be as complicated, but a lot of the learnings we have from our prior acquisitions.
<unk> are incorporated into the audit are actually taken into consideration as we plan for this.
Thank you.
Yes.
What's that.
Factors would prompt you to drive higher unit growth versus the guide of 50, I know you mentioned more competitive bidding is actually starting to happen, but have there been any internal discussions on potentially international expansion given your recent quarter and also the recent acquisition of a roof.
I Didnt Hello, you know if you think about our pipeline for this year most of the pipeline you have to have already started construction by the time the year almost by the time that you started to get them open because it takes a little longer to open a restaurant or build a restaurant today than it did before COVID-19.
So if it's not started by the end of Q1, it probably doesn't open this year.
Maybe even if it doesn't start until.
By July it is hard to open this year.
So that's why we've got our our kind of guide of about 50 gross openings. When you when we talk about international that doesn't incorporate that's not incorporated in our unit count because we are a.
Committed to staying a company owned model only in the U S not necessary not that we wouldn't have franchise in the U S. But we will be only franchise outside the U S and Canada. So.
All of our restaurants outside the U S. The ones that we opened last year were all all franchised and anything that we open going forward is likely to be franchise as well.
Perfect. Thank you.
Sure.
Thank you our next questions come from the line of Brian Harbor with Morgan Stanley . Please proceed with your question.
Yes. Thank you good morning, I had a question just about fine dining sales.
Is that really just kind of about the lapping dynamic or can you provide any comments on kind of some of the different customer sets, whether it's business type of customers versus like a more aspirational customer if you're seeing anything different there.
Yeah, Brian I'd say, you know first of all you know as I as we said in the prepared remarks, we actually saw fairly consistent retention related to pre COVID-19 for the last three quarters.
Fine dining what we're seeing is we are seeing a little bit of pullback on.
On the on the alcohol sales and we still think that's also a function of wrapping on a significant increase a year ago now as we just generally speaking what we're seeing with the demographics is consumers below 35 are.
Are above pre COVID-19, but they are below last year.
And and then whereas our 55 plus is still below break pre COVID-19, but theyre similar to last year. So that the so there's a different dynamic year over ear, where youre seeing that younger demographic pull back a little bit of your own ear and then.
Similarly on the income side, we're seeing that lower income is that is that all pre COVID-19, but still below last year, but below last year, whereas higher income is flattish to last year are similar to last year, but there are still below pre COVID-19. So those are some of the insights I can share on fine writing.
Okay. Thank you and then maybe just on kind of the labor line.
Did you comment on what labor inflation wasn't the most.
Most recent quarter it sounded like it was still like mid single digit range and is there any kind of like slowing in that pace assume through the course of this year or is it going to be pretty steady or how do you kind of expect that to play out.
Yeah, our labor did overall labor inflation ticked down about 100 basis points from Q3 to Q4, we were at 6% in Q4 does that include a wage inflation close to 7%.
So that's also a tick down from prior quarter, a meaningful step down and that's actually was a little bit better than we thought going into the quarter now as we look to the future. As we said you know so we ended the year with six 9% total labor inflation and.
And we said you know we expect that to step down by about 100 basis points. As we go into next year. That's why we talked about that mid single digit inflation.
Thank you.
Thank you our next questions come from the line of Dennis Geiger with UBS. Please proceed with your questions.
Thank you Raj I'm, just curious if there's any update to share on how you're thinking about continued margin gains longer term I know you've spoken a bit more to the long term total shareholder return algorithm.
But just curious if anything new on long term margin considerations that have 10 to 30 bps annually as it is kind of the right way to think about it still.
Yes, Dennis like we do we do think that 10 to 30 is that is the way to think about it from where we are starting this fiscal year. So that's why you know we restated our framework and the only change we made is to the share repurchase because we still believe that that 10 to 30 is there is a good target for us to to have for the for the foreseeable future.
Thank you and then just on the to go sales.
Across the portfolio to some extent just curious sort of where you sit now and if any kind of latest thoughts on what that could look like either you know growth their sales mix opportunities as we as we look to 'twenty four thank you very much.
Well so our to go sales are actually pretty consistent with where we wanted in Q3. So I think we're still running at olive garden close to 25% Longhorn that are in 14 and Cheddar is at 12.
It is not that dissimilar to what we had a quarter ago and we're doing that without third party delivery and we continue to see that you know, we're able to kind of still get overall sales growth and outperformance of our the industry, while not tapping into these other channels and actually we're managing the experience better and we feel like you know we.
Have opportunity to continue to execute on that as we've said before this is higher than we would've expected a couple of years ago, but we're really happy with it and our teams are focused on executing it executing at the highest level possible to make sure that we can sustain and grow from here.
Alright, Thank you Raj.
Yeah.
Thank you our next questions come from the line of John <unk> with J P. Morgan. Please proceed with your questions Hi. Thank you I know you have actually famously done a lot of brand level customer segmentation work you used to talk about that in analyst days many years ago. So.
Using that data or using your current thinking can you explain how you think about the.
<unk>.
Upcoming repayment of student loans, so that's not something that you've been asked it out today, it's coming I think in September obviously the press. It itself is it's kind of.
Gotten smart that that's something that's coming in actually it might be fair.
Significant change for at least some cohort of the population can you think there is there any impact there.
Darden, specifically have you thought through that.
And what might potential responses.
Hey, John Yeah, we think through that all the time and we do still do those consumer segmentation studies and we still do market structure studies, we don't necessarily talk about them externally because we don't want everybody else to see him but.
Thinking about the about the student loan impact.
Yes, they'll start being repaid in I guess September around there, but it shouldn't be a material headwind it it'll be a headwind anytime you take money out of consumers pockets of headwind, but it shouldn't be a material it shouldn't be material because student loan payments or very small component of GDP and it's probably already baked into the economic forecast for GDP growth.
That we use for our plan.
And just in terms of that specific cohort I mean, whether it's 25 to 44, what have you I mean, I know olive garden, you know historically, it's kind of skewed older. But is there anything that you can kind of help.
Help us with is just saying Hey, you have some big big percentage of the customer base, that's just not going to be affected by it by al is there you know.
A little bit more information you can kind of give us cause you triangulated. Thank you.
Sure I think I think Raj talked about our consumer segment, our consumer demographics.
A little bit ago, we're still above pre COVID-19 on our on our on our consumers and the 35 age age range or below 35, which is probably the ones that are in their student loan repayment period.
And the 55 plus or below pre COVID-19 last year. So there's probably still some room for some of those 55 plus to come back and I'm doubting that they're paying student loans back unless you're paying them for their kids.
And if you think about our population we still have a high percentage of our of our consumers that are above $100000. So hopefully a student loan repayment wouldn't impact them too much.
Okay. That's helpful. Thank you sure.
Thank you our next questions come from the line of Andrew <unk> with BMO. Please proceed with your questions.
Hey, good morning, Thanks for taking the questions.
Two from me. The first one is on the commodity side I'm curious if you feel like your visibility into the food cost outlook is improving or the duration to which you have visibility.
It is improving just as the rate of inflation is moderating here and then the second question is on the unit growth side you talked about.
You know the bidding side and some favorability potentially there I'm just curious in terms of permitting supply chain equipment or are there green shoots on that side or how are you seeing that evolve.
Hey, Andrew this is rod so on the commodity side, we do have better visibility today than we did a year ago. We actually have for the first time I think in 40 years, probably have coverage that is actually pretty similar to the way we used to before COVID-19.
I think we have you know as we talked about for the first half we have a total coverage, 65% of our basket colored and call it closer to that 25% to 30% in the back half color, which is again pretty much back to the levels. We used to have pre COVID-19. So we definitely feel like we have a lot more visibility today than we did before.
And then as far as a development side, we are starting to see some signs of improvement Rick talked earlier about some of the bids coming in better or multiple bids coming in.
Theres still some delays in permitting and utility connections with local agencies and stuff like that but you know, but all that said, we do see some green shoots we think that our we believe that the inflation on the construction side has peaked.
No no it's still elevated but it's not a it's not going continuing to go up.
And in fact, I think we you know the last few bids we've had our last few calls.
Section starts we've had.
They were in line with our budget or better. So just makes you now starting to see some positive signs there.
Great. Thank you very much.
Okay.
Thank you. Our next question is coming from the line of Brian Vaccaro with Raymond James. Please proceed with your questions.
Hi, Thanks, and good morning, I, just wanted to circle back on the strengths at Longhorn It seems like the brand set another step up at least in the Atlanta. The average weekly sales volumes, which I think are now up in the mid thirty's versus pre COVID-19 levels and I know the brand has gained a lot of share through the pandemic, but anything incremental whereas height.
Do you think is driving this incremental uptick.
Yeah, Brian you know.
Long run has been executing well for the last few years and I keep I want to commend Todd and his team they've been on this journey.
And quality simplicity and culture, that's what Todd talks about every day investing in quality and portions that continue to pay off.
They had almost 7.1% same restaurant sales growth in the quarter that was driven by some pricing.
They've had had more inflation.
But they also had record weekly sales and mother's day week.
And yes, they're 34% above pre COVID-19 levels in sales versus Q4.
And traffic is positive.
Over pre Covid. So I can't tell you, it's any any any silver bullet and we've talked about that in the past that there arent silver bullets here it's about.
Having great execution investing in your team investing in your product to.
To drive profitable same restaurant sales growth and that's what they've been doing.
Alright, and then I also just wanted to circle back on the roots acquisition and your customer segmentation work and could you elaborate a little bit on the overlap or maybe more interestingly the key differences between the <unk> customer base versus your other fine dining brands or any other differences you think are worth highlighting regarding the brand.
Yeah, Brian Let me talk about differences and why we believe that there is a there's not a whole a lot of overlap between routes customer in AR and AR capital grow customer, but I will preface this by saying we've only owned for eight days and before we close the deal we were not allowed to see their consumer data right. We were still competitors and we couldn't.
See there.
Their consumer data other than looking at third party data that we would have so.
We want to start looking at their data to understand it a little bit better.
But one of the primary reasons is geography. If you look at you know they have 150 ish restaurants, including the franchise system and they have restaurants in markets that capital grille doesn't have restaurants in.
And even in restaurants of capital even in markets of capital grille has restaurants in they're not necessarily close to each other in a lot of those markets. So there isn't as much overlap as you would expect and that's a good thing for us and that's a good thing for Ruth's, Chris and that's a good thing for capital grille, and but then I would add that if you think about Eddie V's and capital grille.
We've had this kind of scenario for many years, where Eddie V's guests May go to capital grew up or they go for different occasions, and we want to learn a little bit about that at Ruth's on the occasion differences.
And then finally, I think capital grows a little bit more going back to geography, a little bit more.
Mixing urban then route this.
And urban core versus Ruth's, Chris where Ruth's Chris you know for example, if you're a restaurant in Birmingham, we don't have or in in Destin, Florida, There's a ruth's Chris we don't have we don't have a capital grille. There. So there's reasons that there isn't as much overlap as you would've thought.
Alright, that's great I'll pass it along thank you.
Thank you. Our next question is coming from the line of Jake Bartlett with true Securities. Please proceed with your questions.
Great. Thanks for taking the question Mike was on Labor productivity and you mentioned that you expect some labor productivity improvements in 'twenty, four but not a whole lot and I guess my question is around.
No turnover, Brian I would've thought that just improving.
Labor environment staffing is kind of I think back to pre COVID-19 levels, but turnover is going down so productivity should be going way up.
In terms of.
At your brands have you already benefited I mean, I guess, maybe what's your turnover not so bad before that's where you're not going to get much of an incremental benefit. If you could just talk about how the labor dynamics and what that could or couldnt due to labor productivity.
Yeah, Jake Yes, you would expect that as turnover goes down productivity gets better and we've started to see that already this year. So our turnover is improving and our productivity is getting better. So it's not like we're going from the highest turnover we've ever had to the lower turnover next year, we've actually started gradually moving to it.
One of the places that gets you the biggest productivity losses the turnover in the first 90 days and that's how that's had a very big improvement for US. So you know you don't you have less productivity loss. If you have less 90 day turnover.
And so we've seen an improvement in turnover, we're still above pre COVID-19 levels, but we're a lot closer to our pre COVID-19 levels and we were just last month in 11 months before that in a month before that.
And we will continue to improve I don't know, if we'll ever get back to pre COVID-19 level turnovers.
But if we do then that should give us even more productivity enhancements.
Great and then I had a follow up on on unit growth and gave guidance for 2020 for a couple of years ago. You. You had mentioned your expectations kind of moved towards the higher end of the range to the closer to 3% from the 2% 3% range is that still valid kind of going forward and it's going to be lower in 'twenty.
But longer term should we think of the higher end of the range is the right point or are we kind of.
Getting back into maybe the middle of that range longer term.
Yeah, Jake our goal is still get to get towards the higher end of the range it might take us a little bit more time to get there than we originally thought.
<unk> slowed a lot of stuff down and is in development.
Permitting that Raj talked about equipment that Raj talked about those things are getting better than all the way back it would be great. If we could get permits as fast as we used to get them. It would be great. If we can get a utilities turned on as fast as we used to get them. That's just not come back anywhere near where we needed to be.
And you know as we think about construction costs getting back to a more normal level Raj mentioned that we've had the last few.
Contract that we've bid out have come in better than what we expected and that's a good sign for us So that'll help us get back to that to that higher a higher end of our framework.
And I would also remind people we don't talk about this very much.
But that framework includes M&A.
And while we would like to get to the high end of the framework just with organic growth M&A is part of the framework.
And the other thing is when we shared our framework.
Earlier today, the five year Delta there five year impact of the framework had no M&A in it and we were still within our within you know probably the mid range of our of our unit growth. So.
M&A is part of that it is part of our capital allocation.
So.
But we would still like to get to the high end without M&A.
Great. Thank you so much.
Thank you. Our next question is coming from the line of John Park with Wells Fargo. Please proceed with your questions.
Hey, good morning, I guess as we think about the segment profitability until 24 are there any segments that you guys see as outlined.
Outliers either in terms of improvement or pressure that we were expecting.
Okay.
Well I think it's fair to expect that the you know as we talked about fine dining is a is going to have a tougher art wrap in the first quarter.
But as far as how we think about it year over year, we expect all our segments too.
To get a little bit better that that's kind of how we plan the year and that's why we push our teams to do.
Got it and then kind of just on the pricing side. Similarly, I guess, just given the beef inflation youre seeing is it fair to assume that the longhorn and find that interesting as above that range in olive garden and changes his blog.
Yes, that's a fair assumption.
Great. Thank you.
Yeah.
Mhm.
Our last question will come from the line of Gregory Frankfurt with Guggenheim. Please proceed with your question.
Hey, Thanks, I just had two quick follow up on labor. The first is I guess within that 5% labor inflation that you're expecting how much of that's been statutory this year and how much of it.
Still market pressure and then maybe a corollary question is as you guys are going out there to hire new workers, you're talking about turnover.
Wage cost to hire somebody new today have you seen a break in that are material breaking that wage I'm just curious as I think about how much easier it starting for you guys to hire people.
Hey, Greg So just let me start by clarifying we did not say, it's 5%, we said mid single digits and I want to make sure that it's not treat it as a 5% as we I think our plan actually it seems a little bit north of that but our guidance range embeds something closer to that 6% for wage inflation.
So I just wanted to clarify that and then as far as the D. A.
On the regulatory piece the minimum wage impacts that's about just under two I think for the full year, maybe one 5% to 2% is what we have there are and then beyond that it's just the normal merit increases and other stuff now as far as the comment.
The question that arent wages and you know clearly the environment has gotten a lot better we are doing a lot fewer out of cycle adjustments than we were doing even six months ago. So from a from that perspective, there is clearly a.
You know a lot of I would say for lack of a better at home positive signs.
Signs in and hiring environment in the starting wages all of those things are getting a lot better than.
Where it was if you in a couple of quarters ago, and if I can just add one thing to that.
If you think about our turnover coming down that means we don't have as many people were hiring as we were before so we didn't have to hire as many people now than we did before and so the wage even if even if the the the.
The wage break didn't happen, it's still not as big a deal for us, but the wage break is starting to happen, but the fact that we don't have to hire as many people helps us as well.
Awesome. Thank you guys for the perspective I appreciate it.
Thank you there are no further questions at this time I would now like to hand, the call back over to Kevin.
Kevin Kallikak for closing remarks.
Thanks that concludes our call for today I'd like to remind you that we plan to release, our first quarter results on Thursday September 20 Force first before the market opens with a conference call to follow thanks again for participating in today's call and have a great day.
Yeah.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.